Tata Consumer's House of Brands
Anjal Agrawal
M&A and Strategy at Virtusa || Ex-IB at Nomura (PPO) || IIM Shillong (17-19) || CA || Yes Bank FutureReady Scholar || Ex-JPM || Ex-Baker Tilly DHC || #ProudSINKWAD
As far as instantly recognisable household brands go, it doesn’t get better than Tata Salt and Tata Tea. They have been around for decades and are the #1 and #2 in their respective categories. They’re also among the first brands that come to mind when someone thinks of the Tata Group.
Earlier this year, Tata Consumer acquired Capital Foods, owner of the brands Ching's Secret and Smith & Jones, for $620m and Fabindia-backed Organic India in an all-cash deal, for $230m, along with contingent considerations. The company approved a $800m fundraising plan to fund the recent acquisitions via a rights issue of $360m and commercial papers of $440m.
Post-acquisition integration of Capital Foods is by far considered one of the fastest and most efficient in India. Within 48 hours of acquisition, there was only one consolidated supply chain for Tata Consumer instead of an exclusive supply chain for Capital Foods products as the former has a wider reach. The same speed and efficiency of integration are being replicated with Organic India as it reaches only 24,000 stores currently.
This speed of integration is unprecedented, and is a result of the learning and continuous improvements in the integration playbook, majorly from the merger of Tata Chemicals’ consumer products business with Tata Global Beverages, which took nine months to integrate the business.
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A Soulfull start to the day
Incorporated in 2011, Kottaram Agro Foods retails breakfast cereals under the brand “Soulfull.” Soulfull processes ragi (finger millet) into breakfast and snack options such as muesli, ragi bites and ready-to-cook oat-millet meals. The company is predominantly a South Indian distributor and it sells its products countrywide via its website. It is recognised by India’s Department of Industrial Policy & Promotion (DIPP) and works with state governments and leading research institutions to promote smart foods. It competes with Pune-based Nilon’s Enterprises and Mother’s Recipe.
In 2018, Soulfull received funding of $5.37m from Aavishkaar Venture. At this stage, Soulfull was generating $1.6m in revenues and losses of $0.9m.
In 2020, Soulfull was looking for investors to raise another $15m. At this stage, Soulfull had grown to $7m in revenues. In 2021, Soulfull was acquired by Tata Consumer for $21m (plus earnouts), to expand its product portfolio into the fast-growing ‘on-the-table’ and ‘on-the-go’ categories and to participate in newer consumption occasions. The acquisition is uncharacteristic of Tata because the brand—trendy, urban, premium—is everything one wouldn’t usually associate with the 153-year-old conglomerate.
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Moving to Organic, inorganically
After travelling across India to research the plethora of herbs, the Bharat Mitra and Bhavani Lev launched Organic India in 1997 in Lucknow to “provide solutions for healthy, conscious living.” Organic India started by contracting small farmers from Azamgarh, a town near Lucknow, and just one product – tulsi tea. The brand brought back to the forefront tulsi – an herb renowned in Ayurveda as a powerful adaptogen and for its stress-relieving benefits. Organic India works with thousands of small family farmers and is present in categories such as teas and infusions, herbal supplements, staples, packaged foods and personal care. The firm also offers a wellness and detox programme.
Over 25 years later, Organic India is one of the biggest organic brands in India, working with over 2,500 farmers, has more than 200 SKUs, and is present in 40 countries.
In 2013, Fabindia acquired a 40% stake in Organic India, through a merger and cash deal. Its stake increased to 64% by 2023. In 2023, Organic India drew interest from Tata Consumer and ITC Foods as potential investors. Tata Consumer emerged as the front-runner for the acquisition at $230m.
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Acquiring the Desi-Global – Capital Foods
Incorporated in 1997, Capital Foods is a maker of fusion chutneys and spicy noodles with “desi” (Indian) flavours under the brand Ching’s Secret and also makes the Smith & Jones brand of masala mixes and cooking pastes. In 2006, Indivision India acquired a 33% stake in Capital Foods. Indivision India was the first fund raised by Everstone in partnership with Future Group. In 2013, Indivision exited its 7-year-old investment by selling its entire 44% stake to European family office Artal Investments together with its affiliate private equity fund Invus Group for $29m (13.8x returns on the original investment of $2m).
In 2018, General Atlantic bought a 27% stake in Capital Foods for $54m and an overall projected investment of $75-100m. At the end of 2022, Capital Foods kick-started the sale process. By this time, the reach of Capital Foods was in Asia, Africa, the Middle East, the UK, the US and Canada. It had become a leading producer of food products such as sauces, spices, soups, snacks and noodles for the local and foreign markets. The shareholders included Invus Group (40%), General Atlantic (35%), and founder Ajay Gupta (25%).
In a competitive sale process, that involved Nestle and Kraft Heinz, Tata Consumer emerged as the winners at acquiring Capital Foods including Ching’s Secret and Smith & Jones brands. Tata Consumer acquired a 75% stake (balance 25% to be acquired within 3 years) of Capital Foods, for $620m.
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Restructuring Tata Consumer Empire
In Jan-24, Tata Consumer announced the restructuring of its overseas subsidiaries aimed at simplifying operational structures and creating a unified holding framework for its international branded businesses. The restructuring will see the merger of five US-based wholly-owned entities and the wound-up of two wholly-owned subsidiaries. After the restructuring exercise, the US business of TCPL will be held 100% by TCP UK through its step-down subsidiaries.
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In the 2023 AGM in June last year, chairman N. Chandrasekaran announced Tata Consumer’s vision of transforming itself into a full-fledged FMCG with a rapid expansion of the food portfolio, backed by R&D and innovation. Tata Consumer will be looking at acquisitions to enter categories where it is not present. Branded tea and coffee represent 58% of revenues while the rest is accumulated by the non-branded and foods business.
Consistent with the announcement, Tata Consumer reported a 70% rise in R&D spending, launched 34 products in FY23, and expanded its reach by beefing up the distribution network. Foods business (staples, spices and breakfast cereals, salt) rose 26% in revenues in FY23.
In Oct-23, another announcement mentioned that more price hikes could be on the anvil for Tata Consumer’s foods business, with macroeconomic food inflation remaining at higher levels. The most amount of price hikes is expected in the Salt category. The company has already implemented a 33% price increase in about 15 months (up to Jun-23). Inflation largely impacts Tata Consumer’s Sampann portfolio, which includes its spices and pulses products. In Aug-23, pulses and products saw inflation of 13%, while prices of spices grew 23%.
Tata Consumer has tripled its direct distribution reach between CY21-23 to 1.5m outlets. It is working on expanding the reach of newly launched protein supplements to wellness products under Tata Simply Better and Tata GoFit brands through general trade or millions of India's neighbourhood stores. The company will be "choiceful" in scaling up its younger food categories. For instance, Tata Consumer is testing the dry fruits in general trade, which has mainly been an e-commerce business so far. It is piloting the product in Mumbai and Bangalore and intends to focus on the top eight cities initially before expanding to mom-and-pop stores across the country.
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This concludes the sixth case study in the series “Tata Group – The Globally Local M&A Strategy.” Tata Consumer has high ambitions and an excellent track record. They have demonstrated another excellent execution of M&A strategy to expand their presence while synergistically creating high value. With the fast and efficient post-integration playbook in Tata Consumer, we can expect many more bold moves, brand integrations and further portfolio expansion.
In the next and final case study of this series, we will look at Tata’s crown jewel and Rakesh Jhunjhunwala’s favourite stock – Titan. Titan holds the title of the world’s fifth-largest wristwatch manufacturer. Titan’s house of brands expands across watches (Titan, Fastrack, Zoop, Sonata, Xylus, Nebula and Favre Leuba), jewellery (Zoya, Tanishq, CaratLane, Mia), eyecare (Titan eye Plus, Glares, Fastrack), perfume (Skinn, Fastrack), and sarees (Taneira). Until then, thank you for your time. Please post your feedback and comments.
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Please find below all the information sources that have been instrumental to the above article, along with some additional reading materials. Gratitude to all the creators –
1.????? Mergermarkets
Founder & CEO, Group 8 Security Solutions Inc. DBA Machine Learning Intelligence
8 个月Thanks a lot for posting!