| Globally, there are hardly any examples of such transitions. Apple moved from computers to consumer electronics, while Netflix shifted from DVD rentals to streaming services. Financial services giant American Express started off in 1850 transporting valuable goods, stock certificates and currency, before moving on to its current business of credit cards. But in all these cases, there were compelling underlying similarities. What’s more, barring Apple, none of the others pursued their various businesses simultaneously. Not so with ITC. It has been nurturing the non-cigarettes businesses for over 25 years and diversified into these with an eye on the future rather than under any immediate duress. Historically rooted in tobacco, it has been aggressively building its non-cigarette Fast Moving Consumer Goods (FMCG) segment, particularly food, with notable purchases like Sunrise Foods in 2020 and stakes in Meatigo and Prasuma in 2025 . Last week, it was reported to be back on the acquisition trail, eyeing MTR Foods Pvt. Ltd. and Eastern Condiments Pvt. Ltd. for an eye-popping $1.4 billion. Both brands, owned by Norwegian company Orkla ASA, have dominant positions in Andhra Pradesh, Karnataka, Tamil Nadu, and Kerala, and will give ITC a stronghold in the Southern markets. Clearly, the intent is to bolster its presence in foods. The reasons are obvious. Its cigarette business, while historically a profit powerhouse, faces long-term challenges including regulatory pressures and rising taxes. The government is reported to be considering raising the GST on cigarettes and tobacco products to 40% (up from the present 28%) and levying an additional excise duty after compensation cess on these products ends in 2026. Consumer sentiment too has been shifting against tobacco, with the long-term trends showing continued decline in tobacco usage across the world. Acknowledging that, ITC has been reducing its reliance on the cigarettes business, with their revenue contribution dropping from 62% in FY14 to 37% in FY23. The acquisitions in the food sector then are a key pillar of its diversification strategy, which aims at building a robust FMCG portfolio that can sustain growth as cigarette demand wanes. The timing is right too. India’s packaged food market is booming, driven by urbanization, rising disposable incomes, and a shift toward convenience foods. ITC stepped into the food business in 2001 with brands like Aashirvaad and Sunfeast, and scored big with both. But organic growth takes time, whereas acquisitions allow the cash-rich company to fill gaps in its portfolio quickly by tapping into high-growth niches like spices with Sunrise Foods, and frozen meats and seafood with Meatigo and Prasuma. Its food portfolio, while strong in staples like atta, biscuits and snacks, has gaps in premium and protein-rich categories, the flavour of the moment. The acquisitions of Sunrise Foods, Meatigo and Prasuma align with its focus on premiumization, evident in its Master Chef Creations brand of frozen foods launched in 2021. But in the face of intense competition from giants like Hindustan Unilever, Nestle, and Britannia, ITC’s FMCG journey hasn’t been easy. Sure, its profits aren’t slowing dramatically yet. But in the long run, it’s a tightrope act for the company as it tries to step up its foods game while holding on to the reassuring bulwark of its cigarettes business. Its non-cigarette FMCG segment has grown steadily, with revenues up from Rs 11,339 crore in 2017-18 to Rs 20,966.83 crore in 2023-24, but profit margins remain thin as compared to its peers. Historically, cigarettes have been ITC’s profit engine, contributing over 80% of its earnings before interest and tax (EBIT) even as their share in revenue has dipped. That’s because ITC has been able to mitigate cost pressures by passing them on to consumers. While smokers’ addiction ensures demand elasticity remains low in the cigarettes business, the FMCG business is extremely sensitive to pricing. Buying small, niche firms allows the company to bypass the slow process of building brand loyalty in crowded segments, and score market share rapidly. Its formidable distribution network, perfected over years through its cigarette business, now reaches more than six million retail outlets. Acquisitions provide ready-made products to push through this network, ITC’s competitive edge over rivals. They are also a move to accelerate revenue growth and improve profitability by integrating businesses with higher-margin potential or operational synergies. If large Indian companies were to be evaluated using the metrics of how successful they have been at creating new products for newer markets using fresh business models, judged by the percentage of their revenue from outside the core business, ITC would certainly rank among the toppers. Whether it was the fear of looming extinction of its tobacco business or merely the need to optimize the returns on the cash that it was generating, the company’s repositioning as a FMCG giant has been a strategic tour de force. |
