The company, which announced the deals late last week, can move beyond commodities into fast-growing, high-margin, value-added food segments with the strength of its new portfolio, MD and CEO Sunil D’Souza told ET.
Organic India gives the ₹14,000 crore maker of Tata Tea, Tetley and Tata Salt access for the first time to the pharma distribution channel, he said. TCPL has also signed an agreement with Capital Foods founder Ajay Gupta to continue advising the fast-moving consumer goods (FMCG) company. Capital Foods, valued at ₹5,100 crore, owns popular brands such as Ching’s Secret and Smith & Jones, while Organic India sells organic infusions, tea, supplements, and other health products. TCPL will pay ₹1,900 crore for Organic India.
“With these acquisitions, Tata Consumer leapfrogs beyond commodities such as salt, tea and Sampann brand of pulses,” D’Souza said.
Co Has Been on Hunt for F&B Brands
“Now I can move into value-added products under these brands. With Sampann, Ching’s and Smith & Jones, my broad foods brand portfolio is complete, and we can now cater to the entire range of cuisines for the Indian consumer. With Organic India, we will premiumise our tea business and enter health supplements. We also have a tremendous opportunity to expand into newer, high-value categories with these brands,” he said.
Capital Foods has umbrella platform brands with a portfolio of products for in-home consumption in fast-growing categories. Ching’s Secret leads the market in desi Chinese products across categories like chutneys, blended masalas, sauces and soups. Smith & Jones caters to in-home cooking of Italian and other western cuisines.
TCPL has been on the hunt for strong food and beverage (F&B) brands with cash of ₹3,000 crore on its balance sheet but has consistently stated that it will not overpay for acquisitions.
“What we liked was not for sale, and what was on sale we did not like. This we liked and was on sale,” D’Souza said. “Apart from high growth opportunity, gross margins for the portfolio of both acquisitions are in 50-55% margins category, which is accretive to our current portfolio. Apart from this, we will leverage our back-end functions and scale in finance, legal, logistics and rest of the support functions to drive costs down and get cost synergies to drive profitability.”
TCPL will also bank on Gupta’s understanding of the preferences of Indian consumers, D’Souza said.
“I want Ajay in my business, and his knowledge of Indian consumers and ability to understand what the Indian consumer wants are amazing,” D’Souza said. “He has a wonderful team at the back end and in creating products for Indians. What was lacking in his team was front-end execution and distribution, Tata Consumer brings that to the table.”
He also pledged to maintain the authenticity of Organic’s products.
“With Organic India, we get authentic and genuinely organic products with a strong supply chain and connect with farmers, unlike several other brands in the market,” D’Suouza said. “We did the background research – normally you need to do about 180 tests before it reaches the market, and now Tatas will do 500 tests because when Tatas say it is organic, it is!”
TCPL has a distribution breadth of 3.9 million outlets, of which 1.5 million are directly served. Capital Foods reaches 0.4 million, while Organic India reaches 24,000, so there is potential in the short term for growth through increased distribution for both these acquisitions.
“Almost 40% of Organic India products are herbal supplements sold largely in the international markets,” D’Souza said. “With Tetley, Tata Coffee, Soulfull and Tata GoFit, we now get the heft of the portfolio for the pharma channel and will now build a go-to-market system to build this channel. The Organic India acquisition will help build a health and wellness platform for Tata Consumer.”
The sellers were keen on seeing that the acquirer was right for their companies.
“We have been aggressive on these deals right from the beginning,” D’Souza said. “But what was important is the comfort of the seller with the buyer. For both the sellers, it is their baby, and they have nurtured these brands. Apart from the financial considerations in the deal, they want their product to go into the right hands. To those who will grow the brands and make it bigger.”
The purchases will help TCPL pitch for the upper end of the market.
“The acquisitions have been made with an India focus and if I can leverage it in markets outside India, it’s icing on the cake,” D’Souza said. “These acquisitions are in line with the stated platform strategy to enable Tata Consumer Products to premiumise its existing core in tea (Organic India tea, infusions), strengthen its pantry platform (chutneys, sauces, noodles, pastes), build heft in snacking and mini meals (soups, instant noodles), and add a strong future growth supplements leg in the Horizon 3 (future growth) portfolio.”
TCPL’s portfolio includes tea, coffee, water, beverages, salt, pulses, spices, ready-to-cook and ready-to-eat offerings, breakfast cereals, snacks, and mini-meals. Its beverage brands include Tata Tea, Tetley, Eight O’Clock Coffee, Tata Coffee Grand, Himalayan Natural Mineral Water, Tata Copper+, Tata Fruski, and Tata Gluco+. Its food portfolio includes Tata Salt, Tata Sampann, Tata Soulfull, and Tata Q.