Daybreak - How Tata is gearing up to join the FMCG big league

Episode Date: December 4, 2023

On Dec 1, 2023, Tata Consumer Products, Tata’s FMCG arm, announced a new CFO, Ashish Goenka. This hiring comes at a very interesting time because just about a month ago Tata Consumer Products or TCP approved the merger of 3 of its wholly owned subsidiaries—NourishCo Beverages, Tata SmartFoodz, and Tata Consumer Soulfull. Lately, the company has been on quite a roll. Its been launching out a whole bunch of new products by the dozens. And most importantly, its financials are looking quite good. In the September quarter, it reported a net profit of more than 350 crore rupees.But for the longest time, despite being a giant steel-to-software conglomerate, Tata’s consumer goods game was nowhere close to India's top FMCG companies. In fact, before 2019, it more or less stuck to selling just the essentials.But now its shares have more than tripled. How is the company managing things at this speed? Tune in to find out.RecommendationHow Tata Consumer’s Sunil D’Souza put product launches on steroids Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Day before yesterday, Tata Consumer Products, which is Tata's FMCG arm, hired a new CFO or chief financial officer, Ayesh Gawinca. He's previously worked with FMCG giant.

Hindustan Unilever and also Jubilant Food Works that runs Domino's and Dunkin' Donuts. This hiring comes at a very interesting time because just about a month ago, Tata Consumer Products or TCP approved the merger of three of its wholly owned subsidiaries, Nourishko beverages, Tata Smart Foods and Tata Consumer Soulful, which means that these three subsidiary companies will merge with the holding company, which is TCP. The company said that the idea behind it was to mainly better utilize resources and also reduce costs. Now, lately, TCP has been on quite a role. It's been launching a whole bunch of new products and most importantly, its financials are looking pretty solid.

In the September quarter of this year, its Indian food business reported a 16% annual rise in revenue. and its international business revenue grew by 13%. And it also reported a net profit of more than 350 crore rupees. But for the longest time, despite being this giant steel-to-software conglomerate, Tata's consumer goods game was quite weak. The company was not seen as one that was agile enough, which is why most people thought that it would never actually enter the FMCG Big League. In fact, before 2019, it more or less stuck to selling just the essentials.

Salt and spices and pulses under Tata Chemicals Limited and tea, coffee and water through Tata Global Beverages Limited. Both of these were separate. But in 2019, Tata decided to merge Tata chemicals and Tata beverages. And ever since, the new company known as Tata Consumer Products has been on a spree to launch new FMCG products. It introduced more than 30 new products in the recent financial year itself. For comparison, it was 10 in the year that ended in March 2020. That is quite the jump, no? Even the contribution of new products to the top line has seen a marked rise.

Meanwhile, Tata consumer shares have more than tripled. So how is the company managing things at this speed? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Das Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 4th of December. The coming together of Tata chemicals and Tata beverages was the beginning of a massive challenge for the company. Tata's FMCG arm was nowhere close to the biggie.

think Hindustan Unilever, ITC, Darbar, Britannia and the likes. So to take up this challenge, Tata hired Sunil D'Souza, a career FMCG executive as the CEO and managing director of the newly found company in April 2020. De Sousa began his FMCG career in 1993 in tea sales at Hindustan Unilever, which happens to be Tata's closest rival in tea. He then went on to work with Coca-Cola and Coca-Cola, and PepsiCo in India and Southeast Asia. Before joining Tata, he was the MD of Appliance Maker World Pools India Unit. After he joined Tata, between the years that ended in March 2020 and March 2020, Tata consumers' revenue grew at an annual compounded rate of 13% to around $1.65 billion,

and its profits rose by 38% to over $144 million. The Nifty FMCG-Indexam. The Nifty FMCG in also almost doubled in the same period, and I've already told you about the speed at which the company has been launching new products. So what did it take Tata consumer to get here? From a slow-moving, stuck to the basics FMCG company to this new avatar. My colleague Sita Raman, the deputy editor of the Kien, sat down with Sunil DeSuzza himself in a candid interview to find out. Stay tuned. Sita got straight to the point and began by asking Desuzza about how the rate at which Tata consumer has been launching new products has seen this dramatic rise. D'Souza started by pointing to the fact that for most food and beverage companies,

about 3 to 5% of sales come from innovation. And that is what Tata targeted. He said, for innovation, two muscles are required. First, they had to build consumer insights in the marketing team. So they looked at trends, insights, which consumer habits are required. are changing, what products are trending, and then they came out with ideas. But then they also needed a team which could turn these ideas into actual products, which is the R&D or the research and development team. So Tata built both of these capabilities from scratch.

Earlier, Tata did not have specific capabilities in R&D, but larger F&B companies cannot do without it. So they built different verticals like scientific analysis and claims. and consumer sensory expertise. And they gradually consolidated all their R&D teams into three locations, Bangalore, Mumbai and Shri City, which is near Chennai. De Sousa also gave us a fascinating example while talking about innovation. Before this, Tata did not have a dedicated innovation person in the marketing team. Now they have an innovation manager across all their categories.

So Sita dug in a bit deeper and asked him about what this innovation process within the company actually looks like. DeSuzza explained how Tata consumers' innovation process involves everything passing through what they call stage gates. It starts from ideation and concept to initial product profile, then a rough analysis of what it is, and then a prototype. After that comes the actual commercial production, launch and post-launch analysis. They set up something called the Innovation Council which DeSuzza chairs himself. The council meets every month and it includes all the people who matter from operations, marketing, R&D and innovation. Everybody is on the same call.

And the way it works is that people have to say a clear yes or no to ideas on the call. So there is no going behind somebody's back or trying to lobby. The idea behind this is so that the team does not waste any time trying to debate decisions. Coming up next, one Tata product where all parts of this new innovation process came together. In 2021, Tata acquired a 100% stake in Cotoramagro Foods, which is the maker of the soulful brand of breakfast cereals and millet-based snacks. The brand already had a strong presence in urban markets of South, West, and North India. While making the announcement at the time,

DeSuzza had said how the acquisition was a good strategic fit for Tata consumer products, because for them, it opened up significant new market opportunities in the fast-growing mini-meals segment. DeSuza told Sita how Tata wanted to get into snacking and Sulfil was the perfect path to get there. They evaluated different options for snacking and then zeroed. in on Ragi Bites choco sticks. These were hollow edible sticks with cream inside. It is a sort of a sweet snack. But they had certain conditions. They did not want the outside stick to be made of meida or all-purpose flour. And they wanted the cream filling inside to be the best with as little sugar as possible. So the team spent one and a half to two months on ideation and looking at different

options. Then the R&D team spent around two to three months figuring how to make it low sugar and also as little as possible of anything other than Ragi. But even after all of this, the hollow sticks would not bind. The team, however, kept at it and finally they did figure it up. In all, De Sousa told us that it took them nine months from start to launch. Daybreak is produced from the newsroom of the Ken, India's first subsistricted. Fourses Business News platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters,

subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.