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Environment Scanning

ITC Imperial Tobacco Company of India Limited

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About ITCHistory:

UK-based global tobacco company British American Tobacco(BAT) set up the Peninsular Tobacco Company (Peninsular) inIndia. Peninsular was involved in cigarette manufacturing,tobacco procurement and processing.

It set up a full-fledged sales organization named the ImperialTobacco Company of India Limited (Imperial) in 1910.

ITC Limited (ITC) was a parent company of British AmericanTobacco (BAT).

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Growth

To cope with increasing demand, BAT set up another cigarette

manufacturing unit (in Bangalore) in 1912.

To procure the necessary raw material (tobacco leaf), a new company,

called the Indian Leaf Tobacco Company (ILTC), was incorporated in

July 1912.

By 1919, BAT had transferred its holdings in the Peninsular and ILTC to

Imperial.

Following this, Imperial replaced Peninsular as BAT's main subsidiary in

India.

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Why to focus on Cigarette ?

Cigarettes account for only 15% of tobacco consumed in India.

Cigarettes (15% of tobacco consumption) contribute nearly 85% of

Revenue from tobacco sector.

Increasing amount of consumption rate.

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Indian MARKET

Of the 58% of adult Indian males who consume tobacco, barely 15%

can afford cigarettes.

Bidi : Cigarettes ratio = 10 : 1

Annual per capita adult cigarette consumption in India is appx. one

tenth world average : 141

Future growth depends on relative rates of growth of per capita income

and moderation in taxes.

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India Consumption???

Per Capita Adult Cigarette Consumption

(Sticks)

16621753

561488

141

1190

USA China Pakistan Nepal India World Avg.

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Successful tobacco brands

Gold Flake

Wills

Bristol

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Political Environment

Independence movement:

The Independence movement damaged the companys

distribution network. Many areas became inaccessible overnight due to the partition.

In the early 1940s, Imperials sales declined sharply.

The company however managed to re-establish its distribution

network successfully in the next 15 years.

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Political Environment

Pressure on multinational companies:

By the late 1960s, the Government Of India began putting

pressure on multinational companies to reduce their holdings. Imperial divested its equity in 1969 through a public offer.

After this share holding pattern:

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ITC Shareholding pattern

Category Holding (%)

Indian Institutions 38

BAT 36

Indian Public 26

Total 100


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Political EnvironmentRegulations on tobacco product advertising:

In February 2001, the Government of India announced a ban on

advertising by cigarette companies and restrictions on the sale

and consumption of tobacco products.

Bill 2001 prohibits smoking in public places.

Sale of tobacco products to people under the age of 18.

No tobacco related business would be allowed to advertise in

any type of media.

Even advertising like sponsoring sports and cultural events, by

such companies was to be banned.10


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Political EnvironmentTaxation policy:

The increase in excise duties over the years , which got

reflected in higher prices.

Though volume of filter cigarette sales increased between 1998

and 2001.

Due to Competition of non-filter cigarettes & beedis after 2001

the sale declined.

Competition with smuggled cigarettes:

According to industry sources during early 1990s sales of thesmuggled cigarettes was over 25 percent.

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Decline stage The demand for cigarettes, which was at its peak at 105 billion

sticks in 1998

The share of cigarettes in the total consumption of tobacco was

declining steadily due to Government ban, high taxes, anti tobacco campaigns all

together reduced the consumption sharply.

In 2002, volumes fell to 87.8 billion sticks .

Though ITC clearly dominated the cigarette business, it soon

realized that making only a single product, especially one thatwas considered injurious to health, could become a problem...

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Industry environment

ITC Turnover is US $ 5.1 Billion

ITC ranks among India's top 10 `Most Valuable (Company)Brands', in a study conducted by Brand Finance and published

by the Economic Times.

ITC is one of the country's biggest foreign exchangeearners US $ 3.2 billion in the last decade

ITC employs over 24,000 people at more than 60 locations

across India.

ITC have more than 3,83,000 shareholders


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ITCs has greened77,000 hectares of area

ITC Can store twice the amount of CO2 than the

company actual emits.

ICT has 4 times more Rainwater Harvesting potentialthan ITCs net consumption.

Close to zero solid waste discharge status.

ITCs Watershed Development covering over 30,000hectares brings water to dry-lands.

Industry environment Ecology


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Growth plan.. ITC enjoyed the status of the numero uno of

Indiascigarette industry.

Yet it decided to change its image as thecompany which is socially responsible tocreated a better brand value and highercustomer response.

It decided to tkae bold decisions looking atfuture challenges.

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Diversification?

Growing cigarette market, but Political Environment

To reduce its dependence on its cigarette business.

Diversify into non tobacco businesses.

Sportswear Retailing & merchandising

Paper printing, Paper Board, Greeting cards (2000) Ready to serve packaged foods, Packaging

FMCG

Hospitality

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Diversification?

Cigarette business contributes around 50 % to its revenue.

While other diversified businesses contribute 50 %.

Achieved good success even after late entrant in highcompetition market.

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Diversification

Competitors:

ITC - Market leader in cigarette business : Market share 78 %

Classic, Gold Flakes, Wills, Bristol

(Kings / Light / Filter)

Godfrey Phillips India Ltd (GPIL) : Market share 10 %

Four Square, Cavenders

(Kings / Leaf / Filter)

Vazir Sultan Tobacco (VST) Targeted low end market withsmall size cigarette (< 60 mm length): Market share 9 %

Charms, Charminar

(Filter)

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Diversification

Competitors:

Hotel Taj Group, Oberoi Group, Leelas Group

Paper Packaging / Zhejiang Sunshi, International, Wiehong

Paper Board HuaMU (China, Thiland etc.)

Package food Lays, Balaji, Parle, Britaniya, Priyagold

Personal Care Hindustan-Uni-Lever, P&G, Henkel

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The E-Choupal Initiative

ITC decided to venture into little explored ruralmarket realizing that 60 % of countrys privateconsumption comes from 6.4 lc villages.

E-Choupal redefines choupal, a village squareinformal public meetings are held for discussion andinformation dissemination.

e stands for use of electronic media indicating

connectivity with computers and internet.

It offers five distinct services such as 1) information2) knowledge 3) purchase 4) sale 5) developmentwork

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HOTEL BUSINESS

In 2001 ITC-Welcomegroup entered in collabration with Star-Wood Hotels &Resorts bringing in its premium brand THE LUXURY COLLECTION to India.The 7 hotels which are

1) ITC Maurya in Delhi2) ITC Maratha in Mumbai3) ITC Sonar in Kolkatta4) ITC Grand Central in Mumbai5) ITC Katatiya on Hyderabad6) ITC Mughul In agra7) ITC Woindsor in Bengaluru

Acheivements :ITC Sonar Bangla, Kolkata has become the first hotel in theworld to obtain Certified Emission Reductions (CERs) issued under the aegis of

the United Nations Framework on Climate Change Convention. Joint ventures with Srinivasa Resorts Ltd

Fortune Park Ltd

Bay Islands Resorts Ltd

Maharaja Heritage Hotels Ltd


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FOODS

Ready To Eat FoodsStaples Confectionery Snack Foods

Foods


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Confectionary

ITC currently has two brands in the confectionery segment -'mint-o' and 'Candyman'.

mint-o' was acquired by ITC from Candico in March 2002 www.mycandymanclub.com was launched in July 2004 and

now has a loyal, young user-base. Targeted at young children,the website is populated with games, quizzes, downloads andother fun activities.

ITCs Mint-O Fresh brand has captured a 17% share of thesegment, as opposed to Perfetti Van Melles Chlormint whichlogged a 14.3% share


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Snack Foods

Sunfeast Range of Biscuits i.e Sunfeast Marie, Sunfeast DreamCream, Sunfeast Fantasy etc

Sunfeast extended the biscuits portfolio to the nutritionalsegment with the launch Sunfeast Sachin's Fit Kita range

of healthy products co-created with Sachin Tendulkar. As part of the plans ITC Foods will bring to Kolkata the Sunfeast

Open, the biggest women's tennis event in South Asia, for thenext four years i.e. till 2009.

The launch ofBingo! in March 2007 marked ITC's foray intothe fast growing branded snack foods segment. Bingos portfolioincludes an array of products in both Potato Chips &FingerSnacks segment.

Bingo! is positioned as a youthful and innovative snack, offeringthe consumers with choice in terms of both formats and flavorscarrying a very famous logo No confusion great combinations


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Personal Care

In September 2007, ITC launched Fiama Di Wills, a premiumrange of personal care products comprising shampoos,conditioner, shower gels and soap.

Between February and June 2008, ITC expanded its personal

care portfolio with the launch of Vivel Di Wills and Vivel brands.Vivel Di Wills, a range of soaps, and Vivel, a range of soaps andshampoos, cater to the specific needs of a wide range ofconsumers

In the popular segment, ITC has launched a range of soapsand shampoos under the brand name Superia.


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Safety Matches & Agarbattis

In 2002, ITC's philosophy of contributing to enhancing thecompetitiveness of the entire

value chain found yet another expression in the Safety Matchesinitiative. ITC now

markets popular safety matches brands like iKno, Mangaldeep,Aim, Aim Mega and Aim Metro. ITC's foray into the marketing of Agarbattis (incense sticks) in

2003 marked the manifestation of its partnership with thecottage sector. ITC's popular agarbattis brands include Sprihaand Mangaldeep


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Retail Business

ITC also entered the Lifestyle Retailing business with the WillsSport range of

international quality relaxed wear for men and women in 2000.The Wills Lifestyle chain of

exclusive stores later expanded its range to include WillsClassic formal wear (2002) and

Wills Clublife evening wear (2003). ITC also initiated aforay into the popular segment

with its men's wear brand, John Players. In 2007, the

Company introduced 'Miss Players'- a fashion brand in thepopular segment for the young woman


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ITCs Greeting Card & Gifting BIZ Re-branded

ITCs greeting card and gifting business has been re-branded asthe education and stationery business to reflect its new focus.

The 9000 Crore stationery market comprises of notebookswhich is an 3000 Crore market.

TC has two brands of notebooks, Classmate and Paperkraft,aimed at students and executives, respectively. In fact, most ofits products for students are called Classmate and while itsprinter and copier paper is branded Paperkraft.


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ITC Diversified Business Portfolio

ITC

FMCG

Cigarettes

HotelsAgri BusinessLeaf Tobacco

Agri Commodities

Paperprinting &

Packaging

Paper Board


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Observations:

Though being a market leader in cigarette manufacturing, ITCrealized very early that business environment is changing notin its favour.

It realized that it needs to change the brand image of thecompany which is crucial for its survival and growth.

It diversified successfully in non tobacco industry such ashospitality, retail, food, etc

It changed its brand image successfully as a company which

created knowledge leadership and promotes sustainabledevelopment

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