In a Q&A, the firm’s executive director dwells on the more long-lasting consumer trends, the recovery in distribution channels and emergence of a dual trend in demand
B Sumant, executive director, ITC
The fear around the Covid-19 pandemic is receding and there is a semblance of normalcy. In a conversation, B Sumant, executive director, ITC, tells Ishita Ayan Dutt about the more long-lasting consumer trends, the recovery in distribution channels and the emergence of a dual trend in demand. Edited excerpts:
ITC launched a record number of 120 products last year largely centred around consumer requirements during the Covid-19 pandemic. With fears of the pandemic receding, are you likely to rejig your product portfolio?
To speedily respond to some of the emerging trends during the pandemic, we had launched 120 products last year. Many of the first-to-market products were around sanitization such as Savlon disinfectant sprays and convenience in ease of cooking including a range of ITC Master Chef frozen snacks, pastes and gravies. The demand for hygiene products surged and was at its peak during Covid. With the paranoia receding, demand for products like sanitisers has moderated to a large extent. However, at the top-end of the pyramid, these products continue to be relevant and hygiene as a trend will continue to remain strong. Besides, some of our new innovations are crafted based on long-term consumer trends.
We see the demand for smart cooking solutions to be long lasting and expect the health and nutrition piece to gain in strength with consciousness increasing among people. As far as product launches are concerned, we will return to our normal cycle of launches.
How many product launches have you had this year and is the focus different from last year?
Between Q1 and Q2, we have launched over 40 innovative products. We are witnessing a dual trend in demand- at the upper end of the market people have larger financial savings in their hands whereas at the lower end there is a strain on incomes.
Earnings have been impacted and people are experiencing inflation. So, we have come up with low unit price products across segments like deodorants, ghee, hygiene to enhance accessibility.
At the top-end, people who have continued in their jobs have more savings and are looking for avenues to spend. So, there is a demand for top-end innovative products and there is a demand for low unit price products as well. ITC’s FMCG products have offerings to address a large spectrum of consumer preferences.
ITC’s pre-tax profits were impacted by cost inflation. Will there be further price hikes?
Input costs have gone up significantly and the overall industry has increased prices. It may not have been evident in the last quarter results for the FMCG industry, but this quarter the full price effect will reflect. Our focus is on effective cost management, premiumisation, favourable business mix and evaluating all avenues to mitigate costs and enhance efficiency, to ensure that we don’t have to pass on the entire burden to the consumer. Increasing the price of the product is the last resort because we don’t want to impact the consumer as much as possible.
Are urban sales back at pre-Covid levels?
After the second wave, urban demand has recovered faster. It has moved from a negative five per cent growth to 14 per cent for the industry; rural has increased from a 1 per cent growth to a 17 per cent growth over last year.
For ITC, the rural percentage has gone up even further. The share of rural sales has increased from 28 per cent to around 29 per cent, whilst the share of urban is at around 71 per cent.
ITC has relentlessly focused on driving distribution penetration into rural India by the creation of a multi-layered strategy of direct reach through a hub & spoke model of wholesale dealers and rural stockists aided by a wide network of travelling salesmen. ITC has doubled its stockist network in the last one year (Oct’21 vs Oct’20). We also leveraged analytics and mobility data to ensure availability of products in the right markets.
How have sales through e-commerce channels grown and where do you see it settling?
We have put in place dedicated special teams to support e-commerce and our sales on this platform have jumped 58 per cent year to date. Overall, e-commerce is at 7 per cent of total sales, up from 5 per cent.
But modern trade is also seeing a resurgence after the second wave because all the outlets have opened. Modern trade sales have jumped by 20 per cent (YTD) over last year. Except wholesale, which was impacted by restrictions in inter-state movement during the pandemic, all other channels are higher than pre-Covid levels.
What kind of cost savings has digitalisation translated to?
Digitalisation and use of modern technologies like artificial intelligence and data sciences has got accelerated manifold and we have leveraged digital technologies across every node of the supply chain right from sourcing to manufacturing to distribution. We are already witnessing encouraging results in supply chain optimisation and cost efficiency. The ITC e-store has been an extremely effective platform to gain consumer insights. We revamped our entire strategy for e-commerce in terms of discovery on the channel, the media spends, the digital advertising campaigns, search engine optimisation, consumer segmentation and consumer discovery. That has reflected in e-commerce sales that have seen a significant jump.