Kolkata: RP-Sanjiv Goenka Group, which operates power utility CESC Ltd and the Spencer’s Retail stores chain, on Monday said it is entering the consumables business by launching packaged snacks on the advice of consulting firm McKinsey and Co.
The business will be the first that the Kolkata-based group is building from scratch in several years. So far, all its key lines of business such as power, carbon black and business process outsourcing have been added via acquisitions.
Chairman Sanjiv Goenka has set an ambitious target of scaling up the new business to generate $1 billion (Rs6,500 crore at the current exchange rate) in revenue within five years. The total market for packaged food in India is estimated to be Rs2.5 trillion, according to HDFC Securities.
McKinsey had advised the group to get into business process outsourcing, which led to its acquisition of a controlling stake in Firstsource Solutions Ltd in October 2012 for Rs640 crore in cash. The acquisition exceeded the group’s own expectations, according to Goenka.
The group weighed McKinsey’s advice over at least three years and finally decided to enter the consumable business with a wide variety of affordable snacks priced at Rs5-30 each, Goenka said.
Initially, production will be completely sourced from four facilities. The group has budgeted for an investment of up to Rs10,000 crore over the next 5-7 years in the consumables business as it seeks to build brands and distribution channels across India, Goenka said.
The group is immediately launching “healthy snacking options" priced at Rs20-30 under the Too Yumm brand. The company that will run the business—Guiltfree Industries Ltd—was incorporated in January with a paid-up capital of Rs5 lakh.
To start with, the group is launching two products in eight variants, which are to be available in 15,000-20,000 outlets in three cities—Kolkata, Pune and Delhi—within three months.
Around 10 more products are to be launched in 40-50 variants and distribution will be expanded to reach 100,000 outlets within a year, Goenka said on Monday.
To scale up, the group is “hungry" for the acquisition of existing brands and distribution bandwidth, Goenka said. The group has already started to acquire talent from existing consumer goods companies, he added.
As a strategy, the group is looking to reduce its dependence on government-regulated businesses such as power, Goenka reiterated. It is awaiting regulatory clearances for restructuring CESC, which, going forward, will focus on distribution of power and not generation, he added.
Naveen Trivedi, research analyst- consumer, HDFC Securities, said snacking is a largely unorganized market. “Gaining traction there is easy but it is a very price sensitive market," he said.