A MEETING WITH ITC chairman and MD Sanjiv Puri, invariably turns into a gastronomical experience. The coffee table at his tastefully done up office is laden with goodies — from steamed momos, spring rolls, and sabudana vadas to freshly baked cookies, cakes, and chocolates, one is clearly spoilt for choice. “Have you tried this?” he asks, pointing at a packet of Sunfeast Baked Creations, ITC’s recent launch. “These cookies are freshly baked and have a shorter shelf life,” he explains. Next, Puri opens a packet of Right Shift namkeen made out of millets. This brand caters to the 45-plus consumer cohort, he says.

As Puri sinks into his couch with a double shot espresso, he points at a food-delivery app on his phone that has ITC Master Chef Creations, ITC Aashirvaad Soul Creations and ITC Sunfeast Baked Creations listed. “These are our cloud kitchens,” he proudly says. “We launched in Bengaluru during the Covid-19 pandemic and today we have 66 kitchens across Bengaluru, Hyderabad, Chennai, Mumbai, and Pune. Our repeat customers are high, and the kitchens are able to achieve break-even and good level of profitability,” he adds.

ITC claims a consumer spend of ₹34,000 crore for FMCG, and what stands out is its differentiated style of doing business. While brands such as Aashirvaad atta, Sunfeast biscuits and Vivel soaps continue to be the core, there is a fair degree of micro-segmentation and mass-personalisation that has taken place across categories. Aashirvaad atta can be customised according to one’s taste — multigrain, organic, or even a varietal like sharbati. On the other hand, Aashirvaad Soul Creations promises piping hot nutritious food — a vegetarian thali, palak khichdi, or even a quick vada-pav delivered within 30-40 minutes. And, Sunfeast Baked Creations is all about freshly baked cookies, cakes, croissants, and bagels — delivered fresh.

There are multiple cohorts and platforms too. If you are a protein freak, your go-to platform is Yoga Bar, which has evolved from energy bars to a full-fledged protein solution provider, while Mother Sparsh is about specialised products for infants. Plus, there’s Right Shift. “While keeping the portfolio future-ready has always been a necessity, what is different today is the speed of change. The dimensions of speed and agility are unprecedented,” explains Puri. He says technology has transformed consumption. “With technology, information access is becoming easier, so the consumer is changing. She is becoming aspirational, wants something healthy, and also wants it to taste good. The aspiration is to have the best but she is still value conscious. Different niches and cohorts are emerging, and with the rise of quick commerce and e-commerce, the go-to-market dynamics has also changed.”

The FMCG business, according to Puri, is being built on three pillars: staying ahead of the curve, being agile, and being adaptive. Being ahead of the curve not just means investing in research and development, but also building agile supply chains, sourcing smartly, and manufacturing and distributing closer to the consumer. These multiple layers have made ITC’s FMCG business far more complicated. But Puri believes that complexities are the need of the hour in today’s world. In fact, he has coined an acronym for this: “Geopolitical conflicts, geoeconomic fragmentation, elevated uncertainty in trade policies, the accelerated climate crisis, rapidly changing consumer preferences and regulations as well as the societal impact of dynamically evolving areas such as artificial intelligence are today raising significant concerns. We are indeed navigating a critical TURN — a pivotal inflection point shaped by ‘turbulence’, ‘uncertainty’, and ‘rapid’ change that calls for ‘novel’ strategies, innovation, and solutions to reimagine the future.”

If ITC has to deliver freshly-baked cookies, it can’t use its conventional manufacturing or distribution channels. The products have to be manufactured closer to the consumer and have a separate go-to-market strategy. Again, cloud kitchens may be new-age but standardising and industrialising processes are crucial. Building cohorts and platforms may be an interesting strategy to offer personalised solutions, but it also requires unique ways of reaching out to consumers. A brand like 24 Mantra Organic may offer organic food products but the consumer cohorts could be multiple: homemakers, home chefs, and the Gen Z, among others. This would mean different ways of communicating with various cohorts. A broad-based advertising campaign on TV no longer works. This needs a well-oiled digital framework that would not just drop targeted communication, but also has the ability to continuously spot insights and trends that can be translated into newer products, cohorts and platforms. This needed a business model transformation.

Enter direct-to-consumer (D2C) brands. ITC in the past few years has acquired a host of them such as Yoga Bar, 24 Mantra Organic, Baby Sparsh and more recently Prasuma, known for its momos. It isn’t the only one. Most legacy FMCG firms have been on such buying sprees. According to a Crisil report, in the past five fiscals, around two-thirds of the acquisitions of FMCG players have been in the D2C space. The premium positioning of D2C brands sold through online channels (with pricing 1.5-4.5x higher than established alternatives across categories), helped them log revenue CAGR of ~40% between FY21 and FY24, albeit on a low base. Meanwhile, established FMCG players clocked a more moderate ~9% CAGR.

“Acquisitions of D2C brands by FMCG players have led to a win-win for both sides,” says Anuj Sethi, senior director, Crisil Ratings. While FMCG firms have been able to enter new and premium categories as well as gain access to consumer insights, D2C companies have been able to mitigate challenges of scalability and profitability. “Prior to acquisition, less than 15% of the D2C companies in our sample set had managed to cross ₹250 crore in revenue and only a third reported operating profits,” he says.

ITC has also incubated brands such as Right Shift and Sunfeast Baked Creations. While each of these brands (including the acquired ones) comes with the promise of delivering targeted solutions, it is also creating broader platforms out of these, which solve for concerns such as nutrition, gut health or hygiene, on which deep capability is being built and constantly updated. “Right Shift, for instance, has proprietary extracts which are a part of our nutrition platform. We recently launched Fiama Moisturising Bars with Japanese Hokkaido milk, that leverages a proprietary technology, giving superior moisturising benefits without being sticky. Similarly, Sunfeast Baked Creations is super-premium, very indulgent, catering to aspirational India,” Puri explains.

Each of these platforms needs to be treated differently and for that ITC has chosen to build a partner ecosystem. For instance, the e-commerce and quick commerce platforms have significantly aided in building its frozen foods portfolio and baby care, he says. “When you try to do everything yourself, it takes a long time. Therefore, one needs to be able to stitch partnerships outside the organisation. When you are talking about digital, you need the ecosystem to solve a problem. When you are dealing with complex supply chains given the issue of dealing with volume, niches and variety, you will need a network of partners, and also  another network of logistics providers. Similarly, you can’t assume all innovation will be done inhouse. You have to leverage your partner ecosystem to take in their creative aspects.”

Puri says most of ITC’s brands are armed with proprietary ingredients and tech, which give them a unique proposition. While a lot of credit for this goes to its R&D arm, one can’t ignore its agri business division, which plays a crucial role in sourcing the ingredients at the farmer level. It’s well-known that the wheat for Aashirvaad atta or potatoes and spices for Mad Angles are sourced from ITC’s network of farmers, which gives the much-needed efficiencies into its FMCG arm — not just cost efficiency, but also control over quality and sustainability.

Puri says the focus now is to develop proprietary solutions even in the agri business that would fuel its FMCG cohorts and platforms. The proprietary biological extracts that make Right Shift more nutritious or Baby Sparsh more impactful also needed to be developed in-house.

“The idea is to go from generic to proprietary. Proprietary is something we are investing right now, it will take some time to grow that. The strategy is to cater to emerging consumer needs. Consumer aspirations are changing on what they want to eat, what type of produce they seek — organic or sustainably sourced.  It’s also aligned to emerging regulatory needs and being ahead of the curve.”

Puri is a fitness enthusiast. He seldom misses his morning yoga session and is looking fitter by the day. His demeanour is calm. But how does he manage? He says navigating such complexities not only requires business model transformation, but also empowered teams. A top-down style of leadership would be ineffective.

“It’s really about creating distributed leadership, empowered teams that are on product and market clusters, have access to resources and degrees of freedom to make decisions. Because we are empowering them, they are also responsible holistically,” he says.

“While you provide empowerment, what is important is that there are very clearly values or guardrails that are followed in the organisation — being obsessive about quality, customer centricity, and the very critical aspects of trust and trusteeship. Everything needs to be aligned with a purpose and vision. This is important in an environment which is dynamic, with change happening really fast.” He emphasises a philosophy of three ‘Vs’ — vision, value, and vitality.

“It comes through building a culture where irrespective of the context, you are committed to growth, you navigate the TURN, you need to think ahead of the curve. Only then will you lead competitively and not be a laggard.”

Be it Right Shift, Prasuma, Baby Sparsh or the cloud kitchens, all of them are niches and would take time to scale. But Puri isn’t bothered. “From the context of ITC, unless the initiatives gather scale over time and have some size, it will not be meaningful. Because your supply chains, go to market, the back end, the manner in which the products are manufactured, the logistics will all change and scaling up all of this together is a difficult task. Therefore it has to be a new model — a tailored manufacturing and logistics ecosystem to deal with niches. What we are doing right now is giving us a lot of learnings on how we can fine-tune and scale up.”

But he does agree that scaling will not happen in a hurry. “We realised that some of these categories will take a little more time in India to get scaled but it’s important to be there ahead of the curve. The specialised baby care market, for instance, is small but will grow in the future and is expected to become a ₹10-crore cohort by 2030, which will be sizeable.” Puri’s philosophy is to stay ahead of the curve, a bet he can afford to take. After all, its tobacco business, though considerably toned down, continues to be the cash cow.