Tata Consumer Products, the entity that was formed after the merger of Tata Chemicals and Tata Global Beverages in 2019, is on a mission to become a large company in the fast moving consumer goods (FMCG) segment. With an eye on this goal, it has been steadfastly expanding distribution, driving innovation, and launching new products.
The food and beverages (F&B) category, which has witnessed a spate of launches in the last 12 months, is instrumental to the company’s gameplan, says Sunil D’Souza, CEO and MD, Tata Consumer Products (TCPL). To grab a larger slice of the F&B pie, the company is targeting different segments of the market through a mix of legacy brands such as Tata Tea and Tata Salt, as well as new ones such as Tata Sonnet, Eight O’Clock and Soulfull.
In an exclusive interaction with Moneycontrol, D’Souza spoke about TCPL’s efforts in various directions to establish itself as an FMCG major. Edited excerpts.
TCPL’s annual report for FY21 states that the company plans to invest in digital, innovation and accelerating synergies further. Can you help us understand how these areas will be tapped by the company for the next leg of growth?
While declaring our merger, we had announced that we would achieve cost synergies of roughly around Rs 100-150 crore over an 18-24 month period. We were putting two systems together — food and beverages — and there were a lot of overlaps between them. Over the past 18 months, we have worked on deriving synergies. For instance, we had distributors from the food as well as the beverage verticals, so we combined them and trimmed about two-thirds of the distributors. The focus was to keep distributors with scale who would be profitable. This proved to be cost-effective from a logistics point of view also, as we are now delivering to a limited number of distributors.
Number two, we had several layers in the distribution system; we had consignee agents and then super distributors, so we eliminated some of them. Similarly, we had redundancies among people. Due to these initiatives, we are well ahead of our target and have already achieved cost synergies of about Rs 100 crore. By the end of 24 months, we will probably exceed the Rs 150 crore number.
There are still some pieces to be executed because some things will take a little more time. Going ahead, we will be making more announcements about bringing cost efficiencies to our systems.
Coming to the innovation piece, it is the lifeblood of any FMCG. An FMCG company needs to keep exciting and engaging consumers by bringing in new and differentiated products into the market. When we benchmark ourselves to the rest of the FMCG world in this aspect, we are way behind. Hence, we have rejigged our entire research and development structure and put it into three focused verticals — scientific regulatory affairs, new product development, and strategic projects. We aim to double the innovation percentage. In FY21, we exhibited an innovation-to-sales ratio of about 1.7 percent; for this year, the target is 3-3.5 percent. And as part of this plan, we launched around 14 products by the second half of FY21. This year, we will be introducing about 50 products.
The digital quotient of Tata Consumer was way below what it should be for a leading FMCG company. And we’ve just about finished what I call laying the plumbing for our digital journey. Now, we’ve got the plumbing, the data, and the digital structure. The plan is to leverage the data and drive analytics and machine learning for improved decision-making. We will shift our whole business into becoming more data-driven, both for efficiency and effectiveness.
In which segments and categories will you launch the new products? Also, are we going to see more direct-to-consumer (D2C) efforts?
We will launch new products across our portfolio, including beverages, packaged beverages, ready-to-eat products etc. The broad majority of these products will be launched in the general market. We will segment some of them by channel and positioning. There might be certain products for which it will not make sense to go across the place and the D2C channel would be better suited.
At TCPL our ambition is to become an FMCG company. And F&B is our first step in that direction. The pieces — whether it is building distribution, innovation, digital — all are parts of the strategy that we are putting in place as we become a larger F&B company and then a larger FMCG player.
There has been a lot of focus on premiumisation of your products. However, you are also driving your reach to rural areas. How do these two strategies sit with each other?
I would say it is an ‘and strategy’ and not an ‘or strategy’. We have enough opportunities to build a business by increasing our distribution. When benchmarked against our competitors, we are way below our peers in terms of distribution. Hence, we set out a task of expanding distribution and we said we would double our direct outlets over 12 months. The good part is that in the last quarter, we are already at 8,20,000 outlets. We had planned one million (10 lakh) outlets by September this year, and we are on track to deliver that. When you expand distribution, normally mass and mass-premium roducts will find their way into kirana stores. But in India, there is a sizeable opportunity even in premium products. Even in our beverage portfolio, we have Tata Tea Gold, which is a high-end product and then we are launching Eight O’Clock Coffee under an online-only model. There is a significant consumer base that wants high-quality products and is willing to pay value for those products. We are going very targeted and taking focused actions both on distribution as well as premiumisation. Overall, we need to move up our margin profile. So, whether it is new product categories that we enter or new product launches, we will be inching up the margin ladder.
You have launched several D2C platforms recently. How have they contributed to your e-commerce sales?
When we started our journey as an integrated company, e-commerce was contributing 2.5 percent to our sales and in the last quarter (Q1, FY22), its share stood at about 7.2 percent. We have roughly tripled the percentage over 12-15 months. We have a three-pronged approach for e-commerce. The first is, we will be on platforms such as Amazon, Flipkart, Big Basket and Grofers as this is where you will get scale. But there is also a very distinct need to target specific consumers with our niche premium brands. And that is what we’re doing with Tata Tea 1868, Sonnets, or Eight O’Clock. It’s a very targeted play, but will it be the majority of our e-commerce sales? No. However, it will build a decent niche for itself. And then the third piece is Tata Nutrikorner, our flagship online store for all brands of Tata Consumer Products. We have just finished pilots in Delhi and Mumbai. After we fine-tune the platform, we will be rolling it out across the bigger metros in the first phase and slowly in different parts of the country.
But are these D2C launches more of a testing ground or do you see them becoming an effective sales channel?
It is a bit of both — a testing ground as well as an effective sales channel. For example, take the Tata Coffee Sonnets micro-launch. It is a very niche and premium product and we cannot start distributing it across the country. But using D2C, we can target consumers across the country. It’s a high-value, high-margin, but low-volume category. Therefore, putting it into a mass system would be very difficult to handle logistically. But tapping D2C allows us to handle inventory, make sure we are meeting consumer needs and communicating with consumers. Whether it is inventory, media dollars, or logistics costs, all of it gets optimised through D2C.
You are targeting breakfast fare through Tata Soulfull (a recent acquisition). However, historically, cereals have not fared well in the Indian market. Do you see potential in this market?
We looked at our whole portfolio and we realised that to become a larger FMCG company, we have to become a larger F&B company. In F&B, the field is vast so we wanted to be very focused. We studied the entire market and distilled it into four distinct platforms. And one of the platforms where we want to play is breakfast cereals, mini-meals and snacks.
We have Sampann in a similar space but to our mind, it is a pantry brand. Therefore, we went looking around for some options and found Soulfull. It has identified ancient Indian grains and brought them to life in a format for the modern Indian consumer. We acquired them not only for their current products but also for the pipeline of products they have planned going ahead. The whole idea was: Soulfull has great products and we can help the company scale up through our manufacturing and distribution. We see Soulfull as a product that appeals to consumers, has got the right legs, and given the distribution and innovation pipeline, it is going to be completely accretive to Tata Consumer Products.
There is a bit of an overlap between Soulfull and Sampann when it comes to product offerings. Are you looking at targeting different sets of consumers through these two brands?
We have a distinct positioning for Sampann and Soulfull. Right now, there might be a bit of overlap, but as we move forward, they are going to have different portfolios.
Unlike with tea, you have so far not been able to build a mass play for coffee. Will you keep focusing on the Southern market for Tata Coffee Grand or are you eyeing other regions too?
Coffee is gaining acceptance among consumers across different parts of the globe. We think that sooner rather than later, these brands will enter India. Also, in India currently, we are under-indexed in our market share. And we think that with the expertise of Tata Coffee, we can build brands to reach different parts of the country effectively. And hence we are targeting a high-single-digit, low-double-digit market share in the coffee market. The bulk of the market today is instant coffee and that is where our recent foray, Tata Coffee Grand, plays.
Tata Coffee Grand is not meant only for South India. Given the fact that the big markets for coffee consumption are in the South, we are fishing where the fish is. But that is not to say that the brand is restricted to the South; in fact, we have a greater width of distribution in many of the Eastern and Northern markets. It is going to be a national play, across different geographies. We’ve started by focusing on the South, but the idea is to scale it nationally. As we go forward, we will start innovating in that category to give consumers a different and innovative set of products, which will draw them into the brand and therefore increase our market share.
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