India is probably the only country where salt has a synonym: Tata Namak. For years, its producer Tata Chemicals has enriched the lives of Indian consumers.
Part of the credit for Tata Chemicals' envious brand positioning goes to its MD, R. Mukundan, who has been with the company for a decade. Under his leadership, the company has forayed into specialty and consumer products businesses, which has contributed around Rs 2,500 crore to the Rs 13,000 crore turnover in 2011-12. In this interview, Mukundan talks about TCL's FMCG business and how IT is helping beat competition.
CIO: The consumer side of your business has grown from 11 to 22 percent of revenue. Why are you changing the direction of your business?
R. Mukundan: We aren't trying to change the direction of our business. As India urbanizes, its supply chains will shift. So, the need for packaged products and special additives--new types of chemicals and products--is only going to increase. Therefore, it's only natural for us to leverage the growth of the Indian market. Raising the emphasis on the consumer business will reduce the cyclicality of pressure that comes from being only in the bulk chemicals business. Though it constitutes a major chunk of our overall business, its percentage has come down from 89 to 78 percent in the last few years. On the whole, our consumer product business, the specialty chemical business including Rallis India--which is part of our specialty farm-focused chemical business--and the new area of nutraceuticals contribute to 22 percent of our revenues.
CIO: What are some of the biggest changes TCL has seen since it shifted focus to the FMCG sector?
R. Mukundan: From a commodity company that dealt mainly in inorganic chemicals, we have shifted towards providing solutions to end-customers. We are also developing a strong B2C interface. In the last decade, we have built one of the deepest distribution networks in the area of food additives (salt). We have reached close to 60 million households. Therefore, our team wanted to add more to the portfolio of products that we could take to the market.
And that's when lentils and besan (gram flour) made it to the list. The idea was to bring additional products which could be leveraged by both farmers and consumers. We realized that the basic requirement of a farmer is to access the market, and that of a consumer is to expect high quality products at a reasonable price. Therefore, today we act as a link between the two, utilizing our supply chain's strength which already exists in the area of branded salt business.
CIO: You went from salt, to dal, to water purifiers. How do you decide which areas of FMCG to get into?
R. Mukundan: I think the transition from salt to lentils was purely based on our distribution strength as a company. This way, we were able to lineup products in the nutrition and wellness area for consumers directly. And subsequently, sugar substitutes are the new addition to the list. But these sugar substitutes are meant for our industrial consumers of companies which are in the food business. We are setting up a 300-ton production factory in Chennai to make artificial sweeteners and probiotics.
CIO: How does TCL deal with some of its biggest competitors?
R. Mukundan: In the national branded segments, Hindustan Lever and ITC are our main competitors. But when it comes to lentils, we don't have any national competitors.
If you look at the consumer side, in salt, the total market size in India (loose and unbranded) is close to 6 million tons per year. Within that, the branded national players occupy 33 percent--about 1.5 million tons. At TCL, we sell close to 1 million tons. Therefore, it's quite a substantial market. There's great scope for us to capture the branded market segment since the penetration is not very high. This means we need to focus on increasing our distribution reach. It's also about educating consumers on the benefits of iodized salts.
CIO: What are some of the supply chain issues you face with your consumer business?
R. Mukundan: The basic principle of our commodity business is to not fluctuate the pricing too much. But at the same time, commodities such as pulses vary almost on a daily basis. So, it all depends on our ability to manage risks. For instance, a good question to ask is: How do we keep the end-product's price the same, or, how do we manage the fluctuations in input costs?
The ideal way to do this is to make sure that our inventory levels are low. But in order to do that, we require a suitable amount of time and planning in order to build a low inventory supply chain model.
Last year, our consumer business saw a turnover of Rs 80 crore. This year, we plan to increase it to twice the amount. The opportunity is much bigger, and we believe that we can scale our consumer business above Rs 1,000 crore.
CIO: Is there a way IT can help you streamline your supply chain?
R. Mukundan: Since managing the supply chain is key, IT becomes a vital leverage point. We also believe that IT will play a greater role, going forward. As the data and communications network in India continues to improve, we believe that our company's effectiveness and efficiency will improve as well. As of now, only the major demand and supply centers are linked to IT. But we need to be able to link up all our packaging centers, since we need to monitor them on a real-time basis. Right now, there's a lag between secondary and primary sales. The robustness of secondary sales data is also something that we need to build over a period of time. It's not a limitation of software, but a limitation of the networks.
As things progress, connectivity will improve, and we will also have specific applications to capture the kind of data which can be migrated to our servers and analyzed for appropriate action. So, this is not only limited to the procurement side--with farmers--but also to the consumer side, where we would be able to capture secondary sales data and look for appropriate trends and take corrective action based on customer feedback.
We plan to expand our database from one million to 10 million farmers. This involves intensive IT work which is being done under the Samrudh Krishi service, our own IT-led farm advisory service. Over a period of time, the database on the farm and consumer-end is going to be very critical for us to do two things: Manage risk, and forecast intelligent patterns as they emerge.
CIO: And what about challenges in the FMCG sector? How are you dealing with them?
R. Mukundan: Once in four to five years, we review costs of our supply chain operations. This way, we have been able to constantly produce innovative product offerings and review cost structures within IT.
Another way to deal with these challenges is to focus on what customers want. We have periodically conducted deep customer studies and collected customer insights before launching products into the market. If you look at our products, one of the biggest reasons why our branded products survive is because of packaging innovation.
But in addition to that, we are bringing product innovation as well. We recently launched low sodium salt, Tata Salt Lite, which contains 15 percent lower sodium than ordinary salt. It has been quite a big success.
We have also launched double fortified salt with iron fortification which is addressing the problems of anemia prevailing in large parts of the country. In the same category, we have also launched flavored salt know as Flavoritz, which is available only in A-category stores.
We also launched i-Shakti dals about a year and a half ago, along with Tata Swach, a water purifier brand. In the last 10 years, we have reconfigured our supply chain twice.
CIO: Other businesses that moved from B2B to B2C opened their own stores. Are you planning to follow suit?
R. Mukundan: As far as opening our own stores is concerned, we have no such plans. Although, opening a retail chain in the rural sector gave us an opportunity to offer a complete solution to farmers, which is a differentiator as far as the farm network is concerned.
If you look at our fertilizers and farm business, our own rural network called Tata Kisaan Sansar--which has 700 stores--is one of the largest and profitable retail rural networks in India. It has proved to be a big differentiator in terms of brand value creation and brand franchise among our customers.
CIO: How are you reaching out to customers apart from the traditional retail stores?
R. Mukundan: In 2010, we extended TCL's i-Shakti brand, which was initially launched with salt, to sell a range of pulses to consumers directly. This is a unique initiative as a part of our consumer business, where we deliver the i-Shakti brand of pulses directly at the doorsteps of the customers, without their having to incur any additional costs.
Our pulses brand reaches 21 states, and they are widely available at medium to large centers along with local kirana stores.
This is just a complementary channel to our existing retail channel. The pulses are unpolished and maintain high qualitative standards. A consumer can order as little as three kg and get it delivered within 48 hours. The consumers have responded exceedingly well in Mumbai, where the call center was set up in October last year, but it's still too early to pronounce anything specific on it.
CIO: You said TCL is unifying its backbone using SAP. What direct business benefits do you see from this move?
R. Mukundan: If you look at our data management, our information systems, which were on different platforms earlier, have now become uniform. So, IT has helped us consolidate all the data into one common place. This is an attempt to bring all the processes across TCL, including the overseas entity under one common, single unit.
In terms of benefits, we really don't have a specific method to measure the value we are getting from it, although we do know of the value it generates in terms of stickiness of customers. We are also good at articulating reduction in cost and efficiency improvement. For instance, our finance team will say, the implementation of SAP has reduced the entire cycle time by so many days. But that's efficiency improvement. The effectiveness improvement value is more difficult to monitor.
We also know how much we spend on IT. While our budget is around Rs 80 crore in IT systems, the annual spend is close to Rs 30-35 crore.
CIO: You have outsourced most of your IT. While it ensures a lot of value in terms of cost-saving and service delivery, what are some of its cons?
R. Mukundan: In the past, we outsourced the IT function because retaining talent was becoming an issue. Therefore, we thought if this was outsourced, employees would have the ability to grow more. Also, an IT company would have greater ability to source the right talent and manage it for us. That was the philosophy behind our move.
But now, we understand that the thin line between IT and business is disappearing. So, we realize that there are certain positions which shouldn't be outsourced and therefore, kept within TCL. We will be adding at least two to three critical resources who will be on the rolls of the company, within IT. We are now strengthening our own teams internally on various skills. We believe that some of the skills should be within the company.
CIO: What's the future of TCL?
R. Mukundan: The use of IT is going to become pervasive in our business. IT will not only increase the levels of transparency and ability to make decisions but also reduce the risks. Our company's target is to grow all businesses and put emphasis on growing the specialty chemicals and consumer business.
This will help us decommoditize our business. We plan to increase the share of our consumer and specialty business from the current 22 to 50 percent. That's an anticipative position.
Shubhra Rishi is senior correspondent. Send feedback to [email protected]