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Retail costs involved in brand building

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By definition, brand strategy is a long-term plan for the development of a successful brand in order to achieve specific goals. Building a brand and executing a successful retail strategy for it is the top most concern of all manufacturers irrespective of their size, product’s sales and volumes, turnover, etc. Brand building is also a very slow and tough journey. It requires a lot of investment initially in marketing, retail sales channels, manpower, among other things.

Retail costs in brand building
Building a brand and executing a successful retail strategy for it is the top most concern of all manufacturers irrespective of their size, product’s sales and volumes, turnover, etc

There exist quite a few misconceptions about what constitutes brand strategy. Your brand is not your product, your logo, your website, or your company name. In fact, your brand is much more than that. But it has an intangible quality to it; it has a hard-to- pin-down quality about it even though there are many attributes that separate powerhouse and mediocre brands from each other.

How to make a brand successful, visible, and valuable?

A brand will take its own time and make its journey to establish itself, but the gestation period depends upon the following factors:
– Distribution set-up: The bigger is the distribution set up, larger is the availability of brand, which makes the brand journey quicker. Brand Patanjali serves as a good example.
– Brand visibility: The more visible is the brand, more quickly it will get established. In a country like India where e-commerce has still a long way to go, especially in the food category, the only option left for brands is to rely on brand placement in over 1 crore kirana shops, 3,000 stand-alone stores, and about 5,000+ MT stores, regional as well as national.
– Product positioning and category: Brand journey will also vary for a premium product and a mass consumption product. The reason is that their placement and positioning will vary. For example, take organic food or high quality expensive products. Such products need to find placement in stand-alone/ high-end MT stores. Also, it’s very difficult to develop a communication strategy for such products in an authentic and credible manner.
– Marketing communication and strategy: It’s a misconception in the SME sector that sales is mostly responsible for placement as well as consumer off-take of a brand. While sales teams are responsible for increasing the brand presence and placement, it’s the responsibility of the marketing department to push for higher consumer off-take through innovative promotions, discounts, communication, etc.
– Product usage, need and its application: Many brands fail as their usage is not easy or the product’s benefits do not justify the price.
– Management vision: Generally, it takes 2-3 years for a brand to obtain break-even if it is exports oriented where 50-60 percent of the turnover comes from exports. Examples include organics or niche products. If the domestic turnover has to justify break-even as in the case of organics, products will take 4-5 years’ time at least. The reason is that high investments are required initially and there is slow expansion of markets. The alternative is to develop mass products and right price it if the company wishes to achieve break-even in 2 years’ time.
– The team: If the team is good, then the brand journey will not take more than a reasonable time; otherwise, in the absence of a good team, many companies and their brands are destined to fail.
– Opportunity cost of investments made: Initially, brands will be required to invest more in retail promotions and listing. That means looking at the market closely and evaluating the competition and also factoring in the cost of that investment. But we must remember that brand value is an intangible asset and, in the long run, these investments automatically get justified.
– Price-led brand strategy: Most brand managers don’t agree on this strategy and feel that it is only appropriate for mass consumption products. Still, there are many FMCG companies in India that follow the price-led brand strategy. Examples include Patanjali, Emami, among others. But for premium and niche products, there is usually a toss-up as to which strategy to follow: Whether to go for prime outlets and invest more in listing or opt for B class outlets where the numbers are large and listing fee is very small.
– Sales strategy: In case a company plans to build the brand through HoReCa or through the online channel, then the chances of profitability and revenues coming in faster are good but it will be a more time-consuming journey for the brand to evolve. But in case a manufacturer plans to create a brand through retail, then the journey will be faster. But investments will be higher, returns will be slow and break-even will take more time.

How important and crucial are the above discussed points to the brand-building exercise can be more lucidly understood by way of a case study. Let’s take a look at how ITC went about spending a substantial investment over 10 years in building its Aashirvad Atta brand into the most preferred brand in the packaged flour market and is now looking to replicate this successful model and strategy to its other food products as well.

CASE STUDY: Aashirvad Atta – A 10-year-journey with over Rs 1,000 crore investment

Way back in 2002, when ITC launched packaged wheat flour, it was a late comer to the branded atta market. with Annapurna, and with , had beaten it by a couple of years. Soon however, within four years, says the company, the brand had edged past its peers to corner the maximum market share. Today , ITC says, has 75 percent of the market – of course, given that wheat in India still is a largely unorganized market, the branded segment is a tiny fragment of the overall market. Its main competitor is atta, followed by Annapurna and Pilsbury. ITC is hoping to follow the path that took to get to the top spot for the rest of its branded foods business.

Following the flour dust

For wheat flour, the organized segment in India is estimated at Rs 3,500 crore. This is a mere fraction of the Rs 30,000 crore atta business in the country. In most parts of the country, flour is still a homegrown affair. Wheat grains are bought in bulk and ground at the local millers; it took aggressive marketing, deep pockets, an extensive rural network and a team of researchers working closely with the product teams for ITC to break this mindset.

The learning is being used to bring out a range of dairy products (ghee has been launched in Karnataka) and to power new lines of fruit juices and drinks. It has also been used to brand a range of extensions (wheat atta, atta with multigrains, atta with methi, salt and fortified atta), spices (pickle mirch powder, chilli powder, coriander powder and turmeric powder), instant mixes (gulab jamun, ravi idli, rice idli and rice dosa) and ready meals.

V. L. Rajesh, Divisional Chief Executive – Foods Division, ITC Ltd, who is currently away on a sabbatical, had said, “The philosophy of ITC has been building world class brands with the focus on quality, together with sustained value creation for consumers.”

Even though the foods business is still small, compared to ITC’s total turnover, the company seems to be intent on spreading the brand’s reach and significance within its portfolio. Two key food brands in the ITC portfolio are Aashirvaad and Sunfeast. Together they account for more than half the division’s sales revenues. The other brands in the portfolio are Bingo!, , Kitchens of India, , B Natural, and Gumon.

The Aashirvaad route is being taken for the company’s B-Natural brand of fruit juices. An urban brand was sought to be built upon the company’s rural edifice and then expanded into small towns and rural markets. Aashirvaad leveraged the company’s deep linkages with the farmers and that has paved the way for many more linkages and brand extensions. Rajesh said that ITC’s peers do not have this advantage; neither do they possess the massive distribution network that it has built through its core businesses. ITC’s distribution network reaches more than two million outlets nationwide and more than 4.5 million stores through wholesalers.

The Rs 1-lakh-crore dream

Y.C. Deveshwar, Chairman of ITC, has said that in the next 15 years the company would run a Rs 1,00,000 crore FMCG business. Many saw it as a way to step away from the company’s highly taxed and increasingly unglamorous tobacco business even as others scoffed at the numbers. However, skepticism is the luxury of bystanders. ITC believes that the foods business will be a significant contributor towards this goal and Aashirvaad has a significant role to play in this. The company has targeted close to a billion dollars’ worth of business in the next five years from its food brands.

According to Rajesh, Aashirvaad has consistently innovated with taste, form and marketing methods and has successfully straddled the premium and mass market. The secret to this, he says, is research, research and more research. Rajesh believes that the special blends and granulations that the team has crafted, since the launch, for different markets have contributed to its success. “The product is customized for different sets of consumers across regions. In the North, atta is consumed daily, and the look and granulation required there would be different,” said Rajesh.

, CEO of Consults said, “ITC is a corporate brand whose mother brands are Sunfeast and Aashirvaad, which is all about staple foods. As long as the brands can maintain quality and remain holistic, wholesome and unadulterated, launching products under the mother brands will not be an issue.”

He cites the example of as another company that has managed to do the same.

ITC is looking to take the Aashirvaad-Sunfeast brand duo into chocolates and value-added dairy products. currently in Karnataka will be expanded in the South and then pan-India. It is also setting up integrated consumer goods manufacturing and logistics facilities in West Bengal, Tamil Nadu, Punjab, Maharashtra and Telegana. In 2016, the company had invested around Rs 3,000 crore, including Rs 1,400 crore in Punjab alone. The facilities are expected to do away with supply chain inefficiencies and help take the brands into distant corners of the country.

On paper, the plan seems to be perfectly set out but the challenge, apart from managing the vast portfolio of products, will be fending off competitors. Since Aashirvaad and Sunfeast operate in a commodity category, Bijoor says, they will always be operating under pricing pressure. Rajesh says the only way out is innovation. The R&D facility, the ITC Life Sciences and Technology Centre at Bengalaru, has filed over 351 patent applications in the area of agri-business, forestry, food and consumables.