As Tata gets bullish on its FMCG push, we ponder on who it will affect most - in terms of rivals and the category.
Tata group's bid to expand its presence in the FMCG (fast-moving consumer goods) segment with the demerger of consumer products business - Tata Chemicals, including food brands - Tata Salt and Tata Sampann into TGBL (Tata Global Beverages Limited), has been in the news over the last couple of weeks.
Earlier this month, the boards of directors of Tata Global Beverages Limited (TGBL) and Tata Chemicals Limited (TCL) approved the demerger of the consumer products business of TCL into TGBL. Further, TGBL is also set to be renamed as - Tata Consumer Products Limited to "reflect the new strategic direction of the company."
Ajoy Misra, MD and CEO of TGBL, in a media release, says "This transaction is consistent with our strategy to deepen our India presence and transform into a broader FMCG player."
Reportedly, the group is also set to expand its detergent brand Tata Dx (previously launched in West Bengal) nationally and across other formats (liquid detergents, home cleaners etc.) as part of the strategy. Tata Dx that TCL launched as a pilot in West Bengal has been transferred to TGBL as part of the demerger.
According to an IBEF report, the FMCG market in India is expected to grow at a CAGR of 23.15 per cent and is expected to reach US$ 103.70 billion by 2020 from US$ 68.38 billion in FY18. The rise in rural consumption will drive the FMCG market that is expected to grow to US$ 220 billion by 2025 from US$ 23.63 billion in FY18.
HUL, with over 35 brands like Surf Excel, Dove, Lux, Lifebuoy, Annapurna, Clinic Plus etc. across 20 categories that include soaps, detergents, foods, skin care, cosmetics etc. had sales of Rs 34, 619 crores in FY 2017-2018.
ITC, with 25 mother brands like Aashirvaad, Sunfeast, Bingo!, Classmate, YiPPee!, Vivel, Mangaldeep, and Candyman had an annual sales of nearly Rs 16, 000 crores.
Nestlé, with labels including Nescafe, Maggi, Milky Bar, Kit Kat, Bar One, Milkmaid, Nestea, Nestlé Milk and Slim Milk, and Nestlé Dahi and Jeera Raita had sales of Rs 10, 135.11 crores in FY 2017-18.
According to its annual report for 2017-2018, 100-year-old food company Britannia clocked sales of Rs 9, 282 crores.
Marico, with brands like Parachute, Parachute Advanced, Saffola, Hair & Care, Nihar, Set Wet etc. clocked a revenue of Rs 6, 333 crores.
Reports pegged Patanjali's revenues at Rs 8, 135 crores for FY 2017-2018.
Procter and Gamble, with brands like Vicks, Ariel, Whisper, Olay, Gillette, Pampers, Head & Shoulders and Duracell delivered sales of Rs 2, 455 crores according to its 2017-2018 annual report.
So, who's going to be impacted most by the TATA Group move?
According to consumer expert Lloyd Mathias (ex-PepsiCo, Motorola and HP), it's a great move by the Tatas to consolidate their consumer products businesses which are set to alter the Indian consumer product landscape significantly.
He says, "Tata Consumer Products will have significant heft, given their strong brands in foods (Tata Salt, Tata Sampann), beverages (Tata Coffee, Tetley tea and Himalaya water) and the huge distribution synergies they will enjoy. With this, Tatas will become one of the major players in the F&B space challenging Nestle, HUL, ITC, Amul, Dabur, Britannia, and Parle."
Mathias explains, "At first, Tatas already strong presence in staples (salt and staples) could impact branded food and staple majors - ITC (Aashirvaad), HUL (Annapurna). However, as these categories are still largely commoditised, Tata's foray will ensure the consolidation and growth of the branded product share of the market. More importantly, Tata Consumer's width of offerings will get them enhanced shelve space and better access across modern trade, supermarkets and grocery stores."
He adds, "Post consolidation of its consumer products business, Tata will be able to build a sharper and stronger consumer product focus and use the scale of the mega brands for retail, distribution, communication, and media efficiencies. Over time, Tata Consumer Products might enter newer categories and will seriously look at acquisitions to enhance their portfolio."
According to N Chandramouli, CEO, Trust Research Advisory (a brand intelligence and data insights company), "Players like ITC, HUL, Patanjali etc. in the F&B, staple kitchen products and related spaces, are likely to be impacted due to the synergies that this merger brings about for Tata."
Chandramouli says, "Specialist brands like Girnar (tea) are less likely to be impacted as they have created product innovations that are proprietary and difficult to imitate. Tata has the potential to become a big challenger to HUL in the very near future as its consumer approach is quite different. While HUL has created a house-of-brands, an expensive portfolio to maintain from a marketing and advertising proposition, Tata has created a branded house of brand-extensions, which capitalise on the trust held in brand Tata for most of its brands."
He adds, "The FMCG segment had been going through a lot of change over the last five years and the Patanjali phenomenon is something of a disrupter. Tata will have greater penetration in this market and as most of its products are from already strong categories, it is likely to eat into their pie."
Ambi Parameswaran (founder, Brand-Building.com, a brand advisory) says "Tata's move to consolidate its FMCG business under one company is an idea that was waiting to happen given the fact that they have a large business in tea/coffee and salt/pulses. I can see a lot of synergies in the combined entity emanating from marketing synergy, sales consolidation, distribution etc.
"There is a great opportunity for Tata to look at moving consumers from commodities to quality brands. The success of Tata Tea and Tata Salt are both excellent examples where a well-packaged brand managed to convert from a commodity by offering value. The Tatas have recently ventured into 'unpolished daal' and value-added spices; that is a great opportunity to scale up and expand. In a similar vein, there should be many more such opportunities in the food space. The entry of Tata as a combined entity in the FMCG space is good for Indian consumers and retailers. I don't think any particular FMCG player is going to be affected by their move," says Parameswaran as he signs off.