Beyond tea and salt: How Sunil D’Souza plans to spice up Tata’s FMCG pie
Summary
- Beyond salt and tea, the Tata Group isn’t really a force to be reckoned with in India’s FMCG landscape today. But this may change soon—Tata Consumer Products has entered new segments, everything from honey and cold-pressed oils to cereals and plant-based meat meals. What are its chances?
New Delhi: In September 2019, Sunil D’Souza, the former managing director of Whirlpool India, a maker of appliances such as refrigerators and washing machines, received a call from Egon Zehnder, an executive search firm.
Tata Global Beverages, the beverages arm of the Tata Group, was looking for a chief executive officer (CEO). Would he be keen?
Initially, D’Souza wasn’t sure. The fast-moving consumer goods (FMCG) play of the Tata Group wasn’t that coherent back then. It was spread across three-four companies and many legal entities.
Tata Global Beverages was largely in the business of selling tea, coffee and water. A joint venture with PepsiCo, since 2010, also sold non-carbonated ready-to-drink beverages. Tata Industries, a company that promotes and incubates the Tata Group’s entry into new businesses, held SmartFoodz, an entity that sold ready-to-eat products. Tata Chemicals, a chemical company, once sold Indian consumers salt and pulses. A few months before the headhunting firm approached D’Souza, in May 2019, the salt and pulses business merged with Tata Global Beverages.
Egon Zehnder convinced D’Souza to meet Natarajan Chandrasekaran, the chairman of the Tata Group. One of the many jobs, he figured out, would be to “synergize and simplify" this mish-mash of many entities.
“He (Chandrasekaran) painted his vision to me saying that Tata is a big brand name and the group has every right to succeed in the consumer space. But when people count FMCGs, we are not there. That had to change," recalled D’Souza.
In December 2019, Tata Global Beverages announced the appointment of D’Souza as managing director and CEO of the company. He took over from Ajoy Misra who retired. A few months later, in February 2020, the company was renamed as Tata Consumer Products Ltd (TCPL).
Cut to 2024, TCPL is now primed to become a bigger player in the domestic packaged foods market, market watchers believe. In 2022-23, the company generated revenue of ₹13,783 crores, up 11% over the year ago. Profit jumped 30% to ₹1,320 crore, according to its annual filings.
In December 2019, TCPL’s shares were trading at about ₹318 apiece. It closed at ₹1,116.25 on 5 April this year. In other words, a gain of over 250%.
While brands such as Tata Salt and Tata Tea have held a strong sway over Indian households for decades, TCPL has now entered new segments, everything from honey and cold-pressed oils to cereals and plant-based meat meals. Recently, it made two large acquisitions—Capital Foods (owner of the Ching’s Secret packaged noodles) and Organic India (organic teas and health foods).
The company, in short, has moved away from just a beverages and commodity play to enter snacks and household staples. All this will increase competition in the FMCG market substantially, needling rivals such as Marico, Dabur, ITC, Nestle, Parle Agro and Kellogg’s.
Abneesh Roy, executive director and head of research committee at Nuvama Institutional Equities, a brokerage house, said companies want to capitalize on India’s growing middle class.
“In every consumption segment, India will have three-four very serious players," he said.
The question is if TCPL can dominate the new segments it wants to compete in. What are its chances? To understand the company’s strategy, Mint spent an hour with D’Souza at TCPL’s office in Mumbai’s Horniman Circle, a short walk from Bombay House, Tata Group’s iconic headquarters.
Startup @ Bombay House
D’Souza comes across as a man in a hurry. Those who know his working style said he is beyond just a strategic thinker. He can execute.
“He understands how strategy will translate into execution on the ground. He’s also got a very strong bias for action, a trait necessary within the Tata Group," said Pratik Pota, managing director and CEO of Eureka Forbes, a company that makes household appliances such as water purifiers and vacuum cleaners. Pota and D’Souza were once colleagues at PepsiCo India.
Pota, who held various positions at PepsiCo, said that the recent mergers and acquisitions at TCPL require aggression along with the ability to take risks, which D’Souza is capable of. D’Souza’s personality and his execution ability have been shaped by years of working in companies that operate complex supply-chains, and in companies that even competed with Tata brands.
He joined Brooke Bond Lipton India, Hindustan Unilever (HUL)’s tea company, after management school in 1993. The company competed with Tata’s tea brands.
D’Souza next joined Coca-Cola India where he was a general manager of the company’s Surat bottling plant. This period—the mid 1990s—coincided with what came to be called the cola wars.
Both Coca-Cola and rival PepsiCo resorted to high-decibel media campaigns and aggressive distribution strategies.
D’Souza eventually joined PepsiCo where he worked for 15 years before moving to Whirlpool, his last assignment before he was appointed CEO of the Tata company.
“This is a startup with the backing of Bombay House," D’Souza said, talking about TCPL, the need for speed and agility. In this role, he wants to press the accelerator on product launches and innovation. “The Tata Group is never starved for resources and if they set their mind to doing something, they will get it done," he added.
Complex to simple
Like we mentioned earlier, one of D’Souza’s mandates was to simplify and synergize the business. The company has made progress here.
In 2020, the company established a business integration team with a well-defined agenda—consolidate all businesses and optimize distribution channels.
That year, TCPL acquired PepsiCo’s stake in NourishCo Beverages, a company formed in 2010 via a 50:50 joint venture between Tata Global Beverages and PepsiCo India. NourishCo focused on bringing low-priced beverages—for example, glucose water and copper water—to the masses.
“It (the joint venture) was sitting on no-man’s land," D’Souza said. He convinced the chairman to either sell the stake or go for a buy out of PepsiCo’s share. Tata Group chose the second option. “We have now removed the constraints for operating that business and provided fuel," D’Souza said. The business ended 2022-23 with revenue of ₹621 crore, up threefold from ₹180 crore in 2019-20.
Another move in synergising the business was to acquire 100% equity shares of SmartFoodz from Tata Industries in 2021, for ₹395 crore.
D’Souza said that the company has a great product portfolio (such as ready-to-eat pasta, noodles, biryani and combo meals) but lacked the distribution and marketing muscle.
TCPL is now scaling the business with strategic partnerships in the US market and an association with the group’s catering business, TajSats.
The same year, the company decided to transfer its tea cafe format, the Tata Cha chain, to Qmin-Shops operated by a subsidiary of Indian Hotels Company to better focus on its core FMCG business. TCPL, however, continues to be the local partner for international coffee chain Starbucks. Tata Starbucks, with net sales of ₹1,087 crore in 2022-23, now has 392 stores in India and is targeting 1,000 by 2028.
Then last year, TCPL announced the merger of all businesses of Tata Coffee with itself as part of a reorganization plan. Tata Coffee, is one of the largest integrated coffee cultivation and processing companies in the world and the largest corporate producer of Indian origin pepper.
D’Souza said the idea behind all this re-organization is to trim the number of subsidiaries and legal entities, which also reduces compliance.
“We are moving from 40 to about 25 legal entities—that’s the first step. Ideally, we should not have more than 10 entities," he said. “But that’s still work in progress."
Dry fruits and noodles
Indian households spent ₹5.4 trillion in 2023 on FMCG products such as biscuits, soaps, shampoos, toothpaste, jams and floor cleaners. These expenditures have surged nearly 45% since 2019, according to an analysis by the Boston Consulting Group. Major companies such as Nestle, Mondelez, ITC, HUL, Dabur India and Marico have all stepped up investments in their packaged foods business.
Clearly, TCPL, with a large beverages and salt business, did not wish to be left behind.
In 2020, soon after D’Souza took over, TCPL engaged consulting firm McKinsey & Company to conduct a comprehensive analysis of the packaged foods market. The idea was to shortlist high-potential categories for TCPL to enter.
A few conditions were laid out. The company, for instance, wanted to avoid categories dominated by established players. Carbonated beverages, where Pepsi and Coca-Cola rule, or biscuits, where Britannia and Parle products dominate, were two of them.
McKinsey narrowed TCPL’s focus to five categories. These categories cover tea, coffee, salt; pantry (pulses, spices, staples, ready-to-cook, dry fruits); liquids (water, ready-to-drink); mini meals (breakfast cereals, ready-to-eat, snacks); protein platform (plant-based meat, plant protein powder).
There is no national player in the dry fruits category today. The Tata brand can help TCPL gain the first-movers advantage here, D’Souza said. “It is also a high value and high growth category; there is money to be made in value added products such as roasted and flavoured nuts where the margin profile improves," he added.
In fact, the same is true for some other products it has expanded to—breakfast mixes, fox nuts, vermicelli, dalia and blended spice mixes.
Abneesh Roy of Nuvama said that Sampaan, TCPL’s brand selling spices, dals, besan and poha, can be a big name to contend with given that pulses lack a pan-India brand. “Tata Sampann has a first mover advantage," he added. The brand reported a 29% growth year-on-year in 2022-23.
Under D’Souza’s leadership, the company has significantly accelerated its innovation pipeline. The number of new product launches has jumped from 14 per year in 2020-21 to 34 per year currently.
Organic launches aside, the company hasn’t shied away from chasing aggressive acquisition targets. Earlier this year, the company announced the acquisition of Capital Foods and Organic India. TCPL agreed to pay an enterprise value of ₹5,100 crore for 100% stake in Capital Foods while for the 100% stake in Organic India, TCPL will pay ₹1,900 crore.
These takeovers will add 9% and 14% to TCPL’s 2025-26 revenue and earnings before interest, taxes, depreciation, and amortization (ebitda), respectively, Roy estimated.
Meanwhile, the management has reiterated that it is open to more acquisitions. “We are looking for growth and am making sure that we do not leave any opportunity unexplored," the CEO said.
Left to be done
For now, the company is focusing on integrating the two acquisitions, Capital Foods and Organic India. Both the deals open up new markets, even international markets. For instance, Organic India can help TCPL enter the market for supplements and nutrition while Capital’s strengths are in the pantry market.
TCPL already draws 26% of its revenue from overseas markets, mostly on the back of Tetley. In 2000, the Tata Group acquired Tetley, a UK-based tea brand, for $450 million, making it India’s first major cross-border acquisition.
With new brands in its portfolio, TCPL also needs to step up distribution. FMCG, after all, is a distribution game. In the last few years, the company has overhauled distribution to equip sales beyond the more commodity-led salt and tea categories.
It has started to recruit direct distributors in towns with over 50,000 people. But, TCPL is way behind rival HUL.
HUL, which sells soaps, shampoos and detergents, reaches nine million outlets in India. TCPL ended 2022-23 with an overall reach of 3.8 million outlets. Its direct reach, however, has grown three fold from 0.5 million outlets in 2020 to 1.5 million in 2022-23.
D’Souza, meanwhile, routinely visits two markets a month to understand local nuances—also, one of the ways he can spot the company’s distribution gaps first hand. He wants to plug these gaps fast, at the pace of a startup.
“If we don’t work like one (startups), we will not fulfil the ambitions the group has set for us," he said.
