ITC Business Model

Overview

One of the largest sectors in India is FMCG (Fast-moving consumer goods) sector and many brands or companies are there that are operating well in this sector. One such holding company engaged mostly in the manufacturing and trading business of consumer goods/ products is “ITC Limited”.

The company is into a diversified range of businesses including FMCG, Hotels, Information Technology, Agri-Business, and Paperboards and Packaging.

In the FMCG sector, ITC Limited is in the manufacturing of products in different categories such as Foods, Cigarettes and Cigars, Incense Sticks and Safety Matches, Personal Care, Incense Sticks, and Safety Matches, and Branded Apparel. The company has been honored with different awards at the national and international level for its production facilities and hotels in terms of quality, safety, environmental management systems, and productivity.

A Brief Background and Growth Journey of ITC

IT Limited was founded as “Imperial Tabacco Company of India Limited” on 24th August 1910. Further, in 1970, the company was renamed “India Tabacco Company Limited” and in 1974; it was again renamed “I.T.C. Limited”. On 18th September 2001, the full stops in the name of the company were also eliminated to provide recognition to the diversified business portfolio of ITC that includes a vast range of different businesses.  So, now the company is known as “ITC Limited”.

-Initial Journey and further Growth

Business Model of ITC

Business Model Canvas of ITC

Key Activities

Innovative Product Development

ITC is involved in developing and manufacturing different products in an innovative way into its all major segments i.e. FMCG, Agri-Business, Hotels, Paperboards and Specialty Boards, Packaging, and Information Technology.

FMCG

ITC is a leading marketer in the FMCG business in India. The product portfolio of the FMCG segment of ITC includes Foods, Personal care, Education and Stationery, Safety Matches, Cigarettes, Lifestyle retailing, and Agarbattis.

The product innovation can be seen in its different brands that have created a market standing between customers such as Sunfeast, Candyman, Aashirvaad, Bingo!, etc. in the segment of branded packaged foods; Vivel, Fiama, Wills, and Superia in the segment of personal care products; WLS in the business segment of Lifestyle Apparel; Papercraft and Classmate in the product category of Education & Stationery; Aim in matches and Mangaldeep in Agarbattis.

Hotels

ITC is also into the business segment of luxury hotel chains in India. ITC hotel’s activities are centered on delivering the best possible luxury by following world-class green practices. ITC has over 100 hotels in more than 70 destinations and ITC Hotels have defined standards of excellence in the hotel segment in different facilities such as Cuisine, Accommodation, Guest Safety, and Environment.  There are 4 brands of accommodation developed by ITC i.e. Towers, ITC One, Executive Club, and Eva.

Agri-Business

ITC operates in the Agriculture sector as well and the brand has acquired a strong position as a leading corporate in India in the agricultural industry due to its participation in transforming and revolutionizing the rural agricultural area. ITC is indulged in the activities like exports and domestic trading of different agricultural products and is India’s one of the largest exporters in these products. It sources (exports and domestic trading) a couple of products of Food Grains, Feed Ingredients, Marine Products, Coffee, and Processed Fruits.

Paperboards and Specialty Papers Manufacturing

This division of ITC is considered the largest paper and paperboards business in India which is the most eco-friendly and uses advanced technology in the production process. This business segment of ITC has acquired leadership in terms of volume, market research, product range, and environmental performance. Paperboards and Specialty papers business includes different activities related to packaging, communication, printing, graphic, writing, etc.

The business is into producing different products such as Packaging Boards that include Recycled Boards, Graphic Boards, Virgin Boards, Barrier Coated Boards, etc., and Specialty Papers like Décor, Communication, Wrapping paper.

Information Technology (IT) Services

ITC also provides IT services through its IT business vertical ITC Infotech. This segment offers business-friendly solutions to support clients in their success by adding both digital expertise and deep domain expertise from group businesses of ITC. The main activities of ITC Infotech are to provide technology-based solutions and services to different enterprises of different industries like Healthcare, Consumer Goods, Banking and Financial Services, Travel and Hospitality, Manufacturing.

Packaging & Printing

The Packaging and Printing business of ITC is South Asia’s largest value-added converter in terms of packaging paperboard. This business segment includes activities of converting 70,000 tonnes plus paper, laminates, and paperboard every year into different value-added solutions of packaging for different industries such as personal products, consumer goods, liquor, cigarette, and food & beverage.

The clients of the packaging and printing business of ITC include UB Group, Tata Tea, Colgate Palmolive, Nokia, Reckitt Benckiser, Tata Tea, and many more.

Marketing and Promotional Activities

ITC is involved in various marketing and promotional activities to promote its brand and market its businesses, products, and services. Different promotional tools such as electronic, digital, and print media are used by the brand in its promotional activities. Various ad campaigns are launched by ITC and displayed through different channels like television, radio, hoardings, etc.

The promotional activities of the brand are designed based on the target audience and brand proposition. Different brand ambassadors are there to promote different brands of ITC. For example, famous cricketer Yuvraj Singh and well-known actress Soha Ali Khan have promoted the “classmate” brand of the company. Similarly, actor Shahrukh Khan is there to endorse the whole range of snacks covered in the Sunfeast brand.

Various digital marketing campaigns are also launched by ITC such as The Fiama De Wills Men campaign. ITC is also involved in activities related to cross-marketing promotions. For example, the YiPee noodles of Sunfeast brand of ITC had launched a campaign in collaboration with Paytm in which recharge coupons were offered by Paytm at the equal price of YiPPee noodles.

R&D Activities

Research & Development (R&D) center of ITC under the brand “ITC Life Sciences & Technology Centre” is situated in Bangaluru and plays an important role in developing new innovative products and technology solutions to provide a competitive advantage to ITC.

R&D activities of ITC include developing R&D capabilities for future product development in nutrition, health. In Agri-segment, R&D activities are focused on developing varieties of new crops with better yields and better quality.

CSR Activities

ITC is involved in various CSR (Corporate Social responsibility) activities or initiatives. The main CSR initiatives of ITC include the E-Choupal ecosystem, Watershed Development Programme, Livestock Development, Women Empowerment, Primary Education, Health & Sanitation, and many more.

Customer Segment

The customer segmentation of ITC includes geographic, demographic, and psychographic segmentation based factors such as income group, age, profession, business class, region, gender, behavior, etc. by offering a wide range of products and services that cater to the needs of customers in different age groups i.e. between 5-60 years. Also, ITC caters to the requirements of B2B (Business to Business) customers that include different companies operating in different sectors such as IT, Hospitality, etc.

Value Proposition

All facilities under one roof

ITC is into diversified businesses and catering to different needs of customers by offering products and services in different categories such as FMCG, Hotels, Agriculture, IT, Packaging, and Paperboards. So, customers can get all facilities related to personal care, food products, luxury hotel rooms and restaurants, agriculture products, IT services, etc. under a single company ITC.

Value Proposition of ITC’s FMCG Segment

The FMCG sector of ITC offers a unique value proposition to customers by providing a range of quality products such as branded packaged foods, Cigarettes, Safety Matches, Personal Care Products, Lifestyle Products, Education and Stationery Products, etc. ITC has a vast portfolio of different brands to serve different customer segments and these brands have their value propositions at reasonable price points. For example, the famous brand of ITC “Essenza Di Wills” provides a unique range of products in the personal care category, and products are manufactured in France. This brand includes personal-care products of a premium range that offers the right mix of science and nature. Similarly, the “Vivel” brand offers a premium range of quality products i.e. soaps and shampoos.

Moreover, in packaged foods segment also ITC takes care of the value proposition. For example, the “Aashirvaad Atta” was launched with a recipe to provide consistency. The recipe changes on yearly basis as per the weather conditions, so that consistency can be maintained. The blend of Aashirvaad Atta is formulated every year and customization of different blends is done for different regions.

Value Proposition of ITC’s Agri Segment

The Agribusiness portfolio of ITC includes various products such as Coffee, Maize, Wheat, Soya, Processed Fruits, Wheat Flour, etc. These products provide a unique value proposition to customers by offering them Agri commodity solutions through the strong e-Choupal network, customized supply chain, Tailor-made risk management solutions, strong farmer partnerships, etc. ITC has a different rural digital infrastructure network and a deep knowledge of agricultural practices that provide quality and innovative agri-products to customers.

Value Proposition offered by ITC’s Hotels

ITC Hotels offer a luxury commitment to customers along with a unique value proposition of green hotelier and all its luxury hotels are situated at leisure and strategic business places. For instance, their Hotel’s range “welcomhotels” provides five-star hospitality to different travelers such as leisure or business travelers. It also gives customers an advantage of viewing different forts, Havelis, palaces, and resorts that provide a unique experience to customers.

Value Proposition offered by Paperboard Segment

This segment of ITC offers a value proposition by obtaining leadership in the product range, environmental performance, volume, and market reach. The cost and quality of the products of this segment are internationally competitive. This sector caters to the needs of graphic, writing, specialty papers, communication, and printing at a wider level.

Value Proposition offered by IT segment

ITC Infotech provides global digital solutions to different industries and offers distinct value propositions by developing capabilities across different technologies like digital and disruptive and through this, it helps clients for digital transformation. The brand works on a 5D framework of excellence for different aspects such as Data, Design, Domain, Digital, and Differentiated Delivery. Through D[email protected], ITC Infotech helps its clients to provide a superior customer experience.

Key Resources

ITC has both tangible and intangible resources as part of key resources. These are described as under:

Tangible resources

Financial Resources

Financials or Borrowing capacity of the company

ITC has a pool of funds for producing goods and services for its different businesses.

The market capitalization of ITC is 2571.55 Billion for the 4th fiscal quarter of the year 2020. (source). Shareholder’s funds stood at INR 64,029.16 crores in FY 2020 (source).

The profit after tax (PAT) of the company was INR 15136.05 crores for FY2020. (source)

Physical Resources

Raw Material Access

ITC has a strong network of e-Choupal centers that cover 40k plus villages and includes commodities such as rice, coffee, wheat, etc. coming out of farms. This e-Choupal helps the company to stay closer to the suppliers of raw material and thus, removes any intermediaries. Due to e-Choupal, a higher price of corps is paid to farmers in comparison with mandi’s prevailing prices. Also, it helps in saving transportation costs and charges to pay in the form of a trader’s commission.

For easy and fast access to necessary raw material (such as tobacco leaf), ITC has a firm i.e. Indian Leaf Tabacco Development.

Also, ITC produces raw material locally by its WOW (wealth out of waste) initiative. As a part of this initiative, a bag is provided by the company to all households of a particular area for the purpose of disposing of all the solid waste such as metal, paper, plastics. WOW teams collect the recyclable waste from households at some cost and further send the garbage to the junkyard which makes them reusable. After rescuing paper waste, it is transferred to the reprocessing plants of ITC.

Manufactured Capital

ITC has sufficient manufactured physical objects such as infrastructure, buildings, equipment to utilize in the manufacturing of products and provision of services.

ITC has more than 200 manufacturing units and this also includes the greenest and largest paper and paperboard manufacturing concern of India.  It has more than 150 hotels having luxury infrastructure.  The warehousing of ITC covers a 10 million sq. ft. area.

The state-of-art paper manufacturing division of ITC is located in Bhadrachalam, Andhra Pradesh. The Munger plant of ITC covers activities to conserve water.

Intellectual Resources

The company’s intellectual property like licenses, trademarks, patents, rights, etc. is one of its key resources.

Trademarks

The key resources of ITC include different trademarks. For instance, Aashirvaad Atta of the company was launched in 2002 and under the same trade name, Aashirvaad different other products came in India.

Under Sunfeast range of biscuits, different other products such as noodles and Pasta were launched. Classmate trademark for notebooks was used for launching other products like pencils, pens, mechanical pencils, etc.

Organizational resources

ITC has different committees to work on different strategic activities and these are considered its resources. Different committees of ITC include the Audit Committee, Corporate Management Committee, Nominations Committee, Compensation Committee, SBU (Strategic business unit) Committees, etc.

Organizational resources of the company also include different businesses and corporate functions. Businesses include Agri-Business, FMCG, Specialty Papers and Packaging, Paperboards, Hotels. Corporate functions include Accounting, HR, Communications, Legal, IT, Internal Audit, etc.

Intangible resources

Human resources

At ITC, employees are one of the key resources and they take active participation in setting objectives, formulating and executing strategy. A healthy work environment is provided by ITC to its employees that encourage creativity and initiatives and leads to superior performance and accountability of human resources.

Knowledge, Skills, and Expertise of Managers

HR Managers of ITC are well qualified and carrying expertise in their field and are hired from the best business schools of India. They are highly skilled in dealing with all types of grievances of employees and are capable to develop dedicated and motivated staff.

ITC Brand

ITC holds a prestigious and strong position in different market segments of different products. ITC has contributed significantly to the economic gains of India as it is one of the oldest and the most reputed brand of the country.  Therefore, the perceptions of the quality, reliability, durability of ITC’s products are viewed as of superior quality. Below factors contribute to maintaining the strong brand image of the company by keeping the high-quality standards of the company’s products:

Skilled and trained staff carrying global exposure

Automation is of high level related to defect-free products

Customer needs and customer satisfaction are dealt with a high level of sensitivity

Distribution Network

ITC has a vast distribution network covering its different businesses and to enhance its distribution network, ITC uses different promotional strategies.

Customer Relationships

Communication Campaigns for customers

A dedicated command centre is developed by ITC that monitors trends and extracts relevant customer insights. This helps to initiate communication campaigns and develops new products as per the needs and preferences of customers. This command centre has coordinated more than 500 such campaigns on different social media platforms such as Instagram, Facebook, and Twitter.  Few such campaigns include posts on the world cup of cricket, Yuvraj (cricketer) handing his shoes, etc.

Safety of customers

ITC maintains a strong relationship with its customers by ensuring the safety of its customers through its world-class quality products and services. Safe ingredients recognized internationally; are used in most of its products and are developed by keeping in mind the highest standards of performance and safety.

The manufacturing facilities of ITC have top-class hygiene standards, robust QA (quality assurance) systems, EHS management systems that follow different ISO and OHSAS standards. For instance, ITC has adopted below safety measures in its different businesses:

Personal care Products Business

This business segment of ITC develops quality products by carrying extensive research at the R&D centre of ITC. While formulating such products, Ingredients that are safe and internationally recognized are used, and also, these ingredients are as per the highest standards of safety and performance.

The business of Education and Stationery items

In this business, only approved non-hazardous materials are used such as ink, paper, and dyes.

The business of Lifestyle retailing

ITC has a testing system through which all garment styles and raw materials are processed after testing at the in-house lab so that quality standards can be ensured.

Key Partners

Investors

Investors of ITC are its key partners and these investors contribute to the company’s success and growth with a huge investment.

Channels

Distribution Network

ITC has a strong distribution network and it includes different distribution channels such as retail outlets, dealer sales force, field marketing, and promotion teams, wholesale dealers.

ITC Apps

IRIS App

ITC displays everyday stories on its IRIS app and different initiatives of sustainability and brands.

Mangaldeep Devotional App

This app fulfills all the devotional needs of the audience. People can learn to chant mantras, pujas, how to make dishes for festivals in a traditional and unique style, etc. This app is available in different languages.

Cost Structure

For the FY2020, ITC spent Rs. 13121.76 crores on materials consumed, Rs. 4289.71 crores on purchase of Stock-in-Trade, Rs. 1187.64 crores on excise duty, Rs. 2658.21 crores on employee benefits. Apart from these, the finance cost was Rs. 55.72 crores, depreciation cost was Rs. 1563.27 crores, and other expenses stood at Rs. 7822.11 crores.

*(source: itcportal.com)

Revenue Stream

The revenue model of ITC can be seen in below flow chart:

The segment-wise gross revenue of ITC for the fiscal year 2020 is as follows:

Revenue from Hotels: 18.37 billion Indian rupees

Revenue from Agribusiness: 102.41 billion Indian rupees

Revenue from FMCG (other than cigarettes): 128.44 billion Indian rupees

Revenue from paperboards, paper & packaging: 61.07 Billion Indian rupees

Revenue from cigarettes: 212.02 Billion Indian rupees

(source)

The gross revenue of ITC as per the above business segments is shown in the below graph:

 

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