An Assignment on

ITCs diversification into packaged fruit juices, through

acquisition of B Natural
Submitted in partial fulfilment of the course Strategy Consulting

Submitted to:

Prof. Koushik Dutta

Submitted by:

Group 15, Section A

Divya Dhiman 2016PGP123

Ity Jain 2016PGP149
KN Nagadarshini 2016PGP158
Rashi Chaturvedi 2016PGP308
Context
ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India
Limited. The earlier decades of the companys activities centered mainly around tobacco products.
Eventually, the company began diversification into non-tobacco businesses, such as FMCG, Hotel
chains, paper, packaging, agri-business and so on.
ITC Ltd, over the past few years, has expanded and strengthened its presence in the packaged foods
business with world-class brands, including Aashirvaad, Sunfeast, Dark Fantasy, Farmlite, Bingo,
Yippee, Candyman and others. Many of the brands have become market leaders within the segment.
In line with its overall strategy, the company sought to tap the under-penetrated branded
packaged fruit beverages market in the country, through acquisition of Bangalore-based Balan
Natural Foods and reintroduction of B Natural as an ITC brand, in 2015. The acquisition, valued
at around 100 crores, was a further step in fulfilling the Chairman YC Deveshwars vision of
making the company the No 1 non-cigarette consumer goods player in India. However, this was a
unique strategic move for the company as the decision to go the acquisition route doesnt follow the
organic brand building that the company had been doing over the past decade.
B Natural was launched in a phased manner. In the first phase, the product was launched in South
& West India. Then, the company went ahead to launch the brand in North and Eastern parts of the
country and also added a new flavour 'Jamun Joy'. With the initial launch of seven variants, ITC's
range of B Natural fruit juices & beverages was targeted to provide consumers a tasty, new
alternative to the existing brands in the market. Besides a complete revamp of packaging, ITC
invested significantly in re-formulation of the variants with the objective of developing thicker,
tastier fruit juices & beverages closer to the natural taste of fruits. The company claimed that B
Natural range contained no added preservatives, artificial colours or artificial flavours.
When launched, the B Natural portfolio comprised of seven variants, including Mixed Fruit
Merry, Guava Gush, Orange Oomph, Mango Magic, Pineapple Poise, Litchi Luscious and Jamun Joy.
The product is priced at Rs. 99 for a 1 litre pack and Rs. 20 for a 200 ml pack. Jamun Joy is
differentially priced at Rs. 140 for a 1 litre pack and Rs. 25 for a 200 ml pack, while the recently
introduced pomegranate variant is priced at Rs. 199 for a 1 litre pack.

Environmental Analysis
To make an attempt to understand the external environment governing the industry, an analysis of the
political, economic, social, technological, environmental and legal factors is as follows:

Political Factors: The juices and nectars category is affected by a number of political factors like
government intervention to increase the amount of Foreign Direct Investments and so on. As the
category has only 3% of the market share, growing awareness towards healthy and organic products
is likely to invite bigger players into the market and the market seems especially attractive to foreign
players due to FDI relaxations.

Economic Factors: The category is highly dependent on the transport industry, hence fluctuations in
the fuel cost would trickle down to the juices category and affect the cost structure. The nature of the
raw material being seasonal and its vulnerability towards pest attacks and crop failure forces also
affect the attractiveness of the category.
Socio-Cultural Factors: With increase in the income of middle class, new consumers who are more
health conscious are getting pulled into the market. As life is becoming more hectic and tiring,
consumer's preferences are shifting towards healthy drinks.
Technological Factors: Technology plays very important role in maintaining the quality and cost
efficiency to generate higher profit. Better Technology increases the life of the product especially in
this category with products having shorter life span.
Legal Factors: Processing of fruit juice is regulated by the food and drugs regulation. As the
consumer safety requirements have become more rigid across the beverage industry, tracking and
traceability are a prerequisite within the Juices category. Companies need to focus on the
environmental protection law, antitrust law and labor law, which ensure safety of the business and
workers.
Environmental Factors: Various practices like use of chemical fertilizers, synthetic pesticides, and
synthetic preservatives are employed for in fruit farming, which has led to growing concern over food
safety, pollution, human and animal health. Factors like global warming also affect the production
capacity of farmers hence affecting the entire supply chain.

Industry Analysis
The juices & nectars category in India is estimated to be Rs. 2,400-crore market, with an annual
growth rate of 20%. The category is largely urban-centric with rural contribution at less than 10%,
while penetration of this segment at the national level is only around 5%. Given the lower
penetration levels and consumers increasingly moving towards branded packaged juices
format, there is a huge potential in the category in the years to come. Within the beverages market,
the fruit-based beverages category is one of the fastest growing categories, and has grown at a CAGR
of over 30% over the past decade. At present, the Indian packaged juices market is valued at
INR 1100 crore (~USD 200 million) and is projected to grow at a CAGR of ~15% over the next
three years.

Given below is the Porters five forces analysis for the juice industry:
Thus, from the industry analysis point of view, it might not be a very lucrative industry to enter and
hence it is not a good strategic move.

Rationale
ITC has a strong presence in the packaged food business. The company saw the brand as an overall
fit with their current portfolio as well as the long term strategy of the company. Even though the
number of players in the industry is increasing, this market is still under-penetrated as there is still a
big enough pie for everyone because of the growing tendency among urban populace to prefer juices
over carbonated drinks. Some of the possible reasons for entering into this industry are:

Changing consumer lifestyles: Given the change in eating habits, the wider global exposure, and
the growing time-poverty, has provided a fillip to the convenience food segment. Again,
consumer preferences are shifting towards healthier lifestyles. As a result, the packaged juices
market has charted a high growth trajectory thanks to its easy availability, anytime-anywhere
consumption, and convenience. Juices are often seen to be quick, yet nutritional, fillers.
Increased Health Awareness: The rising awareness about heart- and weight-related health
issues, especially among teenagers and young adults, has propelled the consumption of packaged
fruit drinks. There is also a greater preference for these healthier beverages than carbonated soft
drinks.
Hygiene: Juices are healthy only when prepared hygienically. Packaged juices from trusted
national and international brands have usually been prepared and certified to be in accordance
with health and safety regulations. They thus underpin the confidence of consumers in
considering them to be a healthy and convenient option, as compared to the fresh juices available
at local joints and street stalls.
Growing category of informed buyers: There is a growing category of informed buyers who are
able to distinguish between fruit-based beverages and fruit juices. These consumers are health
conscious, highly aware, and have higher disposable income. They have, therefore, led the
demand for 100% fruit juices in the past couple of years.
Habitual purchase: The trend of consumers evolving from fruit drinks in bottles to sweetened
juices to 100% packaged juices has been observed largely in the past couple of years. Consumers
are buying in greater quantities, for household consumption, and buying fruit juices is becoming
more of a habitual purchase than a need-based purchase.

Results
After the acquisition of Balans Natural Foods juice brand in 2015, ITC has become the third
largest player in the fruit juice market with 6.7% market share. ITC forayed into juice market with
a target to achieve more than 10% market share in a couple of years. But it gained only about 1%
over the period 2016-17. The table given on the following page shows the increase in value and
volume market share of B-Natural and its competitors over the period April2015 to Jan2017.
 Value Market Share (%) Volume Market Share (%)
Juices & Nectars Apr15-Jan16 Apr16-Jan17 Apr15-Jan16 Apr16-Jan17
Real (Dabur India) 54.0 56.7 52.8 55.4
Tropicana (PepsiCo) 32.9 28.0 33.4 28.0
B-Natural (ITC) 6.7 7.2 6.6 7.7
PaperBoat 1.6 2.2 1.4 1.8
Del Monte 0.8 0.9 0.6 0.7
Source- Industry quoting Nielsen data

However, the packaged fruit juice segment has not yet been able to become a major revenue
contributor for ITC. It is still in the development phase and is a investment-demanding segment
for the company currently, which ITC is financing through its other revenue generating segments. It
is also focusing on several initiatives to attract more market share, such as launching more regional
and differentiated variants etc.

Shortcomings
When ITC forayed in the fruit juice market, it set the target to add 2-3% market share every year.
ITC targeted over 10% market share by the end of 2016 but it has achieved only 7% market share.
Following might be the possible reasons for its slow growth in the industry:

The strong presence of competitors: Daburs Real (55% share) and PepsiCos Tropicana (30%
share) is one of the problems. B Natural, right down to the name, is being built on a health
benefit pitch. But in a market which has such a large amount of clutter focusing on a primary
benefit or in the very least alluding it, it is difficult to break through on a health and taste
pitch. Plus, going the Tetra Pak route, a tried and tested packaging for juices, also puts it in direct
crosshairs of both Tropicana and Real. The visual similarities between the packaging of latter and
B Natural though very superficial, turned out to be problematic because of the very high brand
equity Daburs Real enjoys in the category.

When ITC entered the juice market with B Natural, ITC focused on a disparate plank for B
Naturals launch i.e taste with its first advertising campaign post acquisition. They tried to
position great taste as a differentiator. But this could not differentiate it from the competitors
due to their strong hold in the market both in terms of health and taste.

Competitive Dynamics
As discussed in the shortcomings section above, when ITC acquired B Naturals, and decided to enter
the packaged fruit juice industry, it was already dominated with major players such as Dabur
and PepsiCo, with 50% and 20-30% market share respectively. Daburs Real brand of juices and
PepsiCos Tropicana brand of juices already had a good recall and it wasnt an easy task to capture
market share from them.
In order to grab some market share, ITC played on flavours- introducing unique flavours that neither
of Real or Tropicana offered earlier. They soon rolled out aggressive marketing campaigns urging
customers to opt for a better juice brand which is not made from concentrate unlike most of
products on the shelf- thus taking an indirect dig at its competitors. While a major competitive
reaction is still awaited in this regard, however, it is not a surprise that Dabur and PepsiCo have found
themselves in a spot of bother as no concentrate campaign questions the quality of their
offering. ITC could also be dragged to court by Dabur, for an allegedly misleading campaign and
showing juices made from concentrates in poor light.
Also, ITC decided to position B Naturals at a premium to its competitors- with the average price
of a 1 litre tetra pack juice being Rs140-145, while most of the competitive products being priced at
Rs 99 on an average.
However, competitive dynamics is not a major concern in this category as the market hasnt
reached saturation yet. The growth in the juice market will come from the number of consumers
growing and with existing consumers consuming more.

Post Implementation Scenario

This acquisition is a case of great amount of synergies between the acquired brand and the
company. Balan Foods brought extensive category knowledge and that coupled with ITCs
traditional strengths proved to be a potential winning combination. Moreover, a significant amount
of fruit pulp for B Natural was sourced through the companys Agri Business Division which works
closely with farmers across the country; thus adding to the synergies.
At present, B Natural range of juices, is available in 9 exciting variants, and has garnered
impressive consumer traction in a relatively short span of time. ITC is now the third largest juice
maker, after Dabur, which is in the top spot with its Real and Real Activ brands, and PepsiCo Indias
Tropicana, which is at the second position.
After the acquisition, ITC decided to focus more on local fruits and regional flavors as well as
allow the products to grow in its traditional market before launching them nationally. Moreover, the
use of previous Balan Foods flavors like Jamun, Brahmi etc meant that in terms of flavors at least
they had something that the Reals and the Tropicanas of the world didnt a unique flavor offering. It
launched its first differentiated variant in the market named Jamun Joy followed by the launch of a
new regional variant of natural fruit beverages i.e. B Natural Punjab da Kinnow in 2016. Post that,
it launched a 100% pomegranate juice, to differentiate itself from other competitors. Unlike most
other packaged fruit juices available in the market which are made from fruit concentrates, B Natural
100% Pomegranate Juice is claimed to be made directly from the fruit pulp and have no added
sugar, colour, preservatives or flavour.
The company is now planning to launch two more variants by October 2017- Bel (Wood Apple) and
Falsa (Grewia asiatica berry).
The company came up with a 360-degree marketing plan to support the launch, including print
advertising, TV, radio, outdoor and digital, roping in Shilpa Shetty as the brand ambassador. Now,
the company is continuously expanding its manufacturing facilities and sales network to achieve a
target market share of 15-20% in the coming years. The company is hopeful that its zero
concentrate and no compromise on taste to achieve health positioning will give it the market
share it desires to have.