Can ITC Foods replicate its Aashirvaad success?

Much has changed in the business of building food brands since the cigarette maker first decided to sell packaged food. In an increasingly fragmented and crowded market, can ITC continue to create brands worth ₹5,000-8,000 crore and beyond? How crucial will it be to acquire the right candidates, instead of building from scratch?

Tough times

Today, ITC and its packaged food rivals are struggling against lagging consumer demand. This impacted the company’s non-cigarette FMCG business in FY25. While sales were up by just under 5% year on year, Ebitda (earnings before interest, tax, depreciation and amortization) fell nearly 7.5% on year. The Ebitda margin narrowed from 11.2% to 9.8%. Urban demand has begun to slow down, although it remains strong for premium products among rich Indians.

Last September, investment bank J.P. Morgan’s brokerage arm said in a note that demand had not changed much except for a slight bump among rural consumers. This year’s monsoon and subsequent harvest season will be crucial for long-term growth.

High input prices are squeezing packaged food makers’ margins further. But, insists Hemant Malik, executive director of ITC’s food business, much of this cyclical trouble in consumer demand is now in the past. Instead, he says, ITC is still benefiting from decades-long consumption trends.

“Only about 14-15% of the business (in foods) is packaged right now,” he said. “We are (still) seeing a shift among consumers towards branded products for better quality. This has and will continue to be a key part of the growth story,” said Malik.

The trouble, however, is that ITC and other large FMCG companies are facing intense competition, including from venture capital (VC) and private equity-backed premium brands in cities, and regional heavyweights in mass markets.

While ITC’s Aashirvaad rapidly became the number one brand nationally in atta, unseating older rivals such as (Hindustan Unilever’s erstwhile) Captain Cook and regional rivals such as Shakti Bhog, its other brands are second or third in their respective, rather fragmented categories.

Sunfeast, for instance, competes with bigger rivals Parle Products and Britannia in the biscuits business, while Yippee is second in the market for noodles, where Nestlé’s Maggi reigns supreme, as per industry estimates.

“We remain firm believers in ITC’s strong long-term growth in foods benefiting from formalization tailwinds and high innovation intensity (300 new products over three years),” J.P. Morgan analyst Latika Chopra wrote in another note this March. “It occupies top 3 positions in most categories with share gains,” the note added.

J.P. Morgan valued ITC’s non-cigarette FMCG business at 6.5x enterprise value-to-sales in FY24, in line with other packaged foods rivals. A year later, the brokerage firm adjusted this valuation multiple to 7x, although it noted that there was “heightened competitive intensity (including in some cases by local players) in categories such as noodles, snacks, biscuits, and popular soaps.”

In an investor presentation from 2023, ITC laid out a long-term strategy for its non-cigarette FMCG business, including foods. First, ‘fortifying the core’ by scaling up its biggest brands, including Aashirvaad, Sunfeast and Bingo; second, “addressing adjacencies” by extending these brands to new categories, such as besan, vermicelli and dairy under Aashirvaad, and shakes and smoothies under Sunfeast; and third, tapping “new growth vectors,” which include ITC’s older brands—frozen food and ready-to-cook under ITC Master Chef, and juices under B Natural, an acquisition it made in the 2010s.

Going inorganic

However, over the last decade, ITC has also been acquiring FMCG brands in food (such as spices brand Sunrise in 2020), home and personal care (including Savlon in 2015 and Charmis in 2017). Since then, ITC has bought more premium, urban-focused brands such as the direct-to-consumer (D2C) healthy foods brand Yoga Bar, and frozen meats and snacks brands Prasuma and Meatigo, and just this month organic staples brand 24 Mantra.

“Over time, we have started looking at opportunity areas that offer large headroom for growth and where we may not have all the skills in house,” said Malik, justifying the acquisitions.

He added that despite extending existing brands into new categories, it made sense for ITC to also buy regional heavyweights to acquire more market share, or pick up a premium brand so that the company can learn how to navigate new, emerging channels such as quick commerce much faster.

The company has cumulatively committed over ₹3,000 crore in the last five years towards stakes in the food companies it has acquired.

ITC has largely structured these deals to play out over a few years, starting with a minority stake and slowly increasing it as the acquired brand grew in size.

Founders of the brands, such as Yoga Bar’s sibling founders Suhasini and Anindita Sampath, and Prasuma and Meatigo’s husband-wife duo Lisa Suwal and Siddhanth Wangdi, keep leadership positions and run the businesses largely independently.

“We give complete freedom to the founders of acquired brands to grow the business; we give them whatever support they might need,” Malik told Mint.

For ITC, the primary consideration is that the company can add value to the brand it acquires, taking advantage of its muscle in distribution, sourcing and new product development.

ITC isn’t alone; all major FMCG firms in India have been acquiring VC-backed and regional brands in the food, beverage, personal and home care categories. In the last five years, Marico, Hindustan Unilever, Dabur and Tata Consumer have spent thousands of crores buying up brands to boost their presence in new categories. Reliance has set up an entirely new FMCG arm, which bought its crown jewel, the 1980s soft drink Campa Cola, for just ₹22 crore. The brand has crossed ₹1,000 crore in annual sales since its relaunch.

“Large FMCG companies are buying up smaller companies for two-three reasons. First, smaller VC-backed brands give them a foothold in a niche category where it is difficult to build brands from scratch. Second, food brands are harder to build than brands in other consumer categories. Food supply chains are more complex and cannot be scaled up in a rush,” Ankur Bisen, senior partner at The Knowledge Company, a consulting firm, said. “Finally, most FMCG majors in India have only found success in scaling up food brands that are based on sugar, such as colas and confectionaries. ITC’s Aashirvaad is an exception,” he added.

That said, a food brand is not like soap or shampoo. Acquiring one does not mean it can automatically be scaled to national level, Bisen further said.

“Take masalas for example. Nearly every state in India has its own taste profile and preferred masala brand. Acquiring one in, say, East India, does not mean it can also sell in north or south India as well. A large FMCG company’s distribution network can only take the brand so far,” he explained.

Most FMCG majors in India have only found success in scaling up food brands that are based on sugar.
—Ankur Bisen

Nonetheless, ITC says it was relatively easy to scale up Sunrise spices in West Bengal. Sunrise’s market share in the state grew from 48% before the acquisition in 2020 to 60% today, Malik claimed. The company has also launched new blends under the brand for new markets, such as a duck curry spice in Assam.

“We are taking Sunrise and extending to the north-east,” he said. “We then extended it to Jharkhand. We are very encouraged by the progress made in these markets. We have also forayed into Bihar where it is taking time. Building the spice business in a new geography takes time, the product has to be customized to the taste of that region,” he added, echoing Bisen’s comments.

Milking the brand

As it finalizes the acquisition of 24 Mantra, ITC will be selling packaged atta under two brands (along with Aashirvaad) and spices under three brands (along with Sunrise and Aashirvaad), across price segments and regional appeal. Similarly, it is now selling frozen foods under ITC Master Chef and the newly acquired Prasuma and Meatigo, best known for their frozen momo and cold cuts.

Apart from managing these acquisitions, ITC is staying the course on extending its biggest brands into new categories. For instance, Aashirvaad has been selling dairy products under the Svasti sub-brand in eastern India since 2018. It started as a corporate social responsibility (CSR) initiative in Munger, Bihar, where one of ITC’s oldest cigarette manufacturing plants is located. The initial goal was to help boost the productivity of milch cattle of Bihar, which traditionally lagged their counterparts in North and West India.

Eventually, the company began selling pouch milk and other value-added dairy products, with a special focus on dahi (curd), hoping to get customers in the state to switch from making dahi at home to buying it for a slight premium in convenient pouches. Rival brand Sudha, run by the Bihar state milk co-operative, also sells packaged milk, dahi and other dairy products, while Gujarat’s Amul gradually began operations in 2017.

Meanwhile, ITC is extending its Aashirvaad Svasti to Jharkhand and Bengal, largely in and around Kolkata city.

But why did ITC enter the dairy business with Aashirvaad, best known for atta, instead of launching another brand?

“As far as Aashirvaad is concerned, our aspiration is to become the most preferred kitchen brand for a range of staples,” Malik said.

This strategy isn’t new. Amul, the dairy market leader, started out as a brand for packaged milk and milk products. Today, it extends across several packaged food and beverage categories, including cookies, chocolates, frozen snacks and, more recently, a range of protein-enhanced foods and drinks. With these extensions, parent Gujarat Cooperative Milk Marketing Federation’s revenue grew from ₹80,000 crore in fiscal year 2024 (FY24) to over ₹90,000 crore last fiscal year, according to a Business Standard report.

But not all brand extensions have been successful. At the height of Patanjali Ayurved’s popularity in the 2010s, personal care rivals Colgate and Hindustan Unilever’s Pepsodent launched a barrage of ‘natural’ variants. These were designed to counter Patanjali’s rapidly rising Dant Kanti toothpaste. But as of FY25, Colgate has largely put its herbal and ‘natural’ variants on the back burner, focusing on its core portfolio of active ingredients-based toothpastes and toothbrushes instead. Colgate continues to be the market leader in the oral care segment.

Hindustan Unilever, too, has acquired stakes in herbal care and supplements brands including OZiva and Wellbeing Nutrition (2022) while gradually rolling back its own naturals brands such as Citra and Lever Ayush, launched in 2017.

National appeal

So, is this the end of the era of building national food brands synonymous with their category and recognizable anywhere in the country? ITC’s Malik argues that the national food brand era ended with the 1990s.

“The era of building brands nationally was probably available during the Doordarshan days,” he said. “But as media fragmentation started, that era ended. By the 2000s, when we entered the food business, media fragmentation had taken place with over 200 TV channels, and the cost of media was going up constantly.”

Besides, he added, the idea of a national food brand is a “misnomer” given how dramatically different food preferences and traditions are in every part of the country.

In fact, experts say, it is increasingly more efficient for India’s largest FMCG companies to simply deploy their cash and buy out the most innovative, independent brands, rather than attempting to build them on their own.

“Large, listed companies usually have a venture fund, and they can afford to not be very innovative,” Rajendra Srivastava, marketing strategy professor and former dean of the Indian School of Business, told Mint in an interview.

“They have distribution and branding power. Therefore, they have a very different attitude to innovation. I could say, spend ₹500 crore cash on R&D (research and development) or I could spend on 500 companies doing R&D. For large companies, this spin-in strategy works better in the long-run,” he said.