For a business, which analysts say, was losing close to Rs 60 crore (Rs 600 million) annually till sometime ago, the turnaround is phenomenal.
The company expects the foods business, with brands such as Bingo, Sunfeast and Aashirwad covering 200 product lines, to report revenues of over Rs 2,200 crore (Rs 22 billion) this year -- up 25 per cent over the previous year. Sunfeast, the biscuit brand, already has a market share of 12 per cent, while Aashirwad accounts for 45 per cent of the branded atta market. Snacks (Bingo), confectionery and basic spices are also making fast progress.
So what led to this super growth? Chitaranjan Dhar, chief operating officer of the foods division, says ITC Foods is focusing on delivering value at competitive prices.
Dhar says all the food categories are moving fast with staples, snacks and biscuits leading the way. "We have been able to develop relationships through transparent practices with the trade," he says.
Dhar also says the company's procurement and manufacturing synergies across divisions have helped it reduce costs. "We do believe ITC's tremendous reach through its extensive distribution chain has been a competitive advantage. Fundamentally it is all about the details; you need to engage in each one of them," he says.
Consider the nature of this 'engagement'. The company's e-choupal model for direct procurement is well known, under which ITC partners with over 100,000 farmers for spices and wheat procurement and an even larger number for oilseeds. This kind of rural pedigree is hard to beat.
The company is now strengthening this reach further by setting up more production units closer to the market and is increasing the number of contract manufacturing units from the current 40. Currently, a plant services markets up to a distance of 550-600 km, and the company wants to bring it down to about 250-300 km.
While the units will be owned by outsiders, the company will invest in machinery and control the processes to ensure quality.
The new plants will be for segments such as biscuits and staples (like atta), the quality of which deteriorate when transported long distance. It's obvious why increasing the biscuits manufacturing capacity by at least 15 to 20 per cent is a key focus area.
The Rs 9,000-crore (Rs 90-billion) biscuits market in India is growing at over 20 per cent annually and contributes over a third of ITC Foods' top line at present.
Analysts agree its well-leveraged distribution muscle remains the key to the success of ITC Foods. For example, look at the meticulous planning while launching Bingo, the snacks brand which has given the market leader Frito-Lay a run for its money.
Apart from keeping procurement costs low, ITC Foods distributed more than 400,000 large racks to display the brand at all points of sale. The racks created so much impact that even Frito-Lay introduced its own version of wafer racks.
Bingo's hugely successful launch campaign was the other key reason. Ogilvy & Mather, the agency which handled the communications for Bingo, says the focus was to position the brand as youth-centric. What works in snacks is novelty and variety.
So, from the beginning, Bingo focussed on variety to sustain consumer interest in the brand.
The variety came through irreverent and fun campaigns -- consumers were asked to design the ads for Bingo using the angular shape of the chips as the central theme.
Marketers call this 'crowdsourcing', which serves two purposes -- it engages the end-consumer and the campaign is done at the lowest possible cost.
The second part of the variety came from the recipes. The chefs in the company's hotels suggested 16 flavours with twists like bindaas masti chaas, chatkila nimbu achar and tandoori paneer tikka-flavoured potato chips, chilli and tomato-flavoured mad angles - inspired by khakras - and other snacks.
The importance of Bingo is evident from the fact that potato-based snacks are the largest product segment (85 per cent share) in the Indian snacks market, followed by snack nuts, chickpeas and other pulse-based savoury snacks.
The success hasn't come easy, though. ITC Foods, which entered the market in 2001, had to compete hard with established players like Hindustan Unilever, Parle, Britannia, and several other small and regional brands.
In 2003-04, it introduced Bischips, which had to be phased out because of poor demand. Its ready-to-eat brand 'Kitchens of India' may also be in the process of being phased out as retail sales are negligible due to its non-availability in most areas.
Analysts say there are still many gaps in the company's portfolio as the business is heavily dependent on biscuits and staples.
In order to be a complete foods company, it has to be present in areas such as chocolates, powders or cake mixes, for example.
The company also does not have a full non-vegetarian range like seafoods offered by competing brands such as Forstar.
Also, competitors are not sitting quiet and are getting into the health snacks space quiet aggressively. Parle Agro, the maker of Frooti and Appy brand of beverages, for example, is the latest entrant in the Rs 6,500 crore (Rs 65 billion) branded snacks segment with the launch of a baked health snack brand -- Hippo.
PepsiCo India's foods division Frito Lay that manufactures the Lays, Cheetos and Kurkure brand of snacks, launched its baked health snack Aliva last month. Marico recently launched its premium health snacks under the brand Saffola Zest.
So maiden profit or not, ITC Foods has got some tough competition ahead with Hindustan Lever also trying to shake off its initial lethargy in the foods business. For, the potential is just too huge.
The Indian food market is around Rs 2,50,000 crore (Rs 2,500 billion), of which value-added food products comprise Rs 80,000 crore (Rs 800 billion), and this is estimated to double in another 10 years.
