Interview/ Sanjiv Puri, chairman & managing director, ITC Ltd
SANJIV PURI HAD a big pair of shoes to fill when he was chosen to succeed Y.C. Deveshwar as ITC chairman. Though he was being groomed for the role, the sheer magnitude of the responsibility could have been daunting for anyone. But Puri came with a plan that addressed the complexities of the conglomerate and its aspiration to grow bigger. In an exclusive interview with THE WEEK, he explains the role of technology, the separation of the hotel business, the growth of the FMCG segment and the India First policy. Excerpts:
Q/ Now a lot depends on AI and digital. You can open new markets and you can expand. Can you tell us some of your thinking and your new findings in this process where AI is coming along with human intelligence and the past practices?
A/ Before we get into it, let us step back a little and take a broader perspective. While the first era of diversification was about defining the portfolio and making progress, the last five years is when we have given a lot more scale and profitability to each one of these businesses.
The aspiration has always been about leadership. Not merely by size or profitability, but also about leadership in the quality of the service or the product that we deliver. That is what we have worked on in the past few years. And, of course, that has seen us define what we call ITC Next.
In ITC Next, we defined certain important vectors that were going to get us competitiveness. We see digital and sustainability becoming a mega trend in the next decade. Therefore, in our whole philosophy of growth, anything that is aligned to the mega trends of sustainability and digital is a priority for investment. That led us to get into sustainable packaging, because the world wants to move away from single-use plastics. It led us to get into ITC MAARS, which is a digital platform in the agri sector.
We also defined different pillars of competitiveness. First, I believe that despite size, complexity and diversification, enterprises must remain agile and consumer-centric.
Second, very clearly, was around innovation. Not merely innovation that is purposeful, but agile innovation which is about delivering speed. Today, we cannot have a situation where it takes several months or several quarters for a new idea to reach the market.
The third piece was around digital acceleration across all elements of our value chain. The next, around developing agile and resilient supply chains. Our supply chains are virtually all over India. Part of our growth strategy is also premised on nation first―Sab Saath Badhein. So that means it is not only financial growth that we pursue, but also sustainable and inclusive growth.
The other pillar is sustainability; as a tool for competitive advantage and not merely around compliance. Progressively, we are seeing consumers opt for products and services that are sustainable, that are climate positive. It may not have translated into behaviour, but an inflection point will come. To give an example of how we are building competitive moats the first 12 hotels in the world to be net zero carbon are ITC hotels. All ITC hotels have emissions lower than the Paris 2030 agreement targets. That is how it gets integrated into strategy.
In this context, let me tell you where digital comes in. Competitiveness of an enterprise emanates from three broad areas. One, developing a differentiated product; second, marketing it effectively once it is in the portfolio; and third, is the efficiency of the entire supply chain, including sourcing, conversion and delivering it to customers. In all these areas we look at big data, AI, ML (machine learning) and now elements of generative AI. For example, we use an AI ML tool called Astra to optimise sourcing wheat from hundreds of mandis.
On the brand side of it, we have Sixth Sense, which is continuously scanning and identifying trends that are emerging. During Covid, for instance, after sanitisers and hand wash, we realised people wanted surface cleaners. So we were the first off the block sensing from the insights on the internet. Within five weeks, we had the product in the market.
Then came winter. To meet the pandemic induced need, it was not possible to wash warm clothes every day. So we made a fabric disinfectant spray.
Q/ Can you give us examples of things that ITC is doing keeping its India First policy in mind.
A/ The focus is on sustainable and inclusive growth and contributing to national priorities. As an enterprise, we are carbon positive for 19 years, water positive for 21 years, solid waste recycling positive for 16 years. These efforts contribute to nourishing the environment. Our value chains support over 6 million livelihoods. We have adopted a two horizon approach that focusses on enhancing current sources of income and developing capabilities for tomorrow.
Today, our Climate Smart agriculture programme covers over 2.3 million acres which builds resilience for vulnerable farmers. Second is ITCMAARS, an integrated ‘phygital’ ecosystem which really builds on the ecosystem that we have got through the e-Choupal which empowered 4 million farmers. It’s an integrated ecosystem which provides crop advisory, which is hyper local personalised and dynamic, on a mobile. It also encompasses avenues for financial inclusion, pre-approved loans and an input market place to provide right quality inputs at the right price. For example, tomorrow, a farmer can press a button and order a drone to spray pesticides in his farm, and also access market linkages. These will be beneficial to small and marginal farmers.
The whole process of using the right inputs and the right advisory itself will improve farmers income. We did a focused experiment in UP and parts of Bihar called Barah Mahine Haryali (twelve months agriculture). We advised farmers not merely on the crop we are buying but also on opportunities to improve productivity through right practices that enabled timely production which then gave them a window to have an additional summer crop. So thereby multiplying their income. That’s the kind of transformation these initiatives can make. As this gathers scale, it can also lead to demand driven agriculture production.
ITC’s social intervention programmes are designed with special focus on women empowerment. Our programmes touch the lives of five million women today. And they are multi-faceted. There are programmes for ultra-poor, for self-help groups, financial literacy and programmes in agriculture for custom hiring.
Q/ FMCG came into its own in the past few years. But before that it was subsidised by the tobacco division. So, how difficult was it to convince the investors during that time to stay the course?
A/ The essence is about being engaged, being transparent, and also about setting the objectives and expectations clearly and delivering on those. That is how trust develops over a period of time. We had said, for example, in FMCG, we will increase margins by about 100 basis points every year. We have been delivering on that. I think from FY17 to last year, it is 770 basis points. So, it has been a little more than what we had promised. At the end of the day, it is all about putting your head down, rolling up your sleeves and building your businesses and delivering superior performance.
Q/ Tobacco remains the dominant profit-making category. Do you foresee that changing?
A/ We have been growing faster in the non-cigarette segment. Today, 80 per cent of our capital employed is in non-cigarette businesses. So, those businesses are growing faster. Mathematically, it means at some point of time, it will. But, you know, the way we look at it is more than that; each one of our businesses should continue to deliver industry-leading performance and become leaders in their own segment.
Q/ You have different divisions that look like they are very disparate, but everything is interconnected. There is synergy between all those divisions. What is next? Which other areas have you probably started thinking about?
A/ In each one of these businesses, there is immense headroom to grow. FMCG has got the largest headroom to grow. So you will certainly see more and more category additions in FMCG. In any case we have categories of the future which we are scaling up and categories that we are incubating and there will be more that we will get into in future.
FMCG exports is something where we are building the foundation. Now we are exporting to around 70 countries, but we want to get scale there. Over time we will do that. We are also thinking of entries into adjacent markets in a more strategic way.
Q/ By adjacent markets do you mean neighbouring countries?
A/ Neighbouring countries, yes. So we have already started the journey in Nepal, because we already have a subsidiary there, but we are in the process of examining other countries also.
Continuing on your earlier question, we also see huge opportunity in value-added agriculture. For example, spices. Medicinal and aromatic plants is another area that we are incubating. That’s a new category.
Q/ ITC Hotels is being hived off as a separate company. What are your reasons?
A/ Hotels as a business has matured. We have moved on from an asset-heavy (company-owned properties) to an asset-right (combination of managed and owned properties) strategy. So it is a mature business and has a lot of headroom to grow. I think it is time to give it a focused management team, so that it can leverage all the opportunities that are opening up in the Indian hospitality space. There are a lot of institutional synergies we do not wish to lose by creating different operating arms. So it is also going to be a test case for us.
Q/ In your expansion, is your main focus going to be India or international markets?
A/ We are more focused on the Indian markets. That is where I think the opportunity is the maximum. If you look at the number of rooms, the supply penetration in India is very low. And I think the boom in tourism in India has just started. The trend on travel, particularly leisure travel within India by Indians, has just taken off post-Covid.
As the economy progresses and incomes improve, services is a space where people will spend their money. Nobody will eat three chapatis instead of two just because he has more money. But he would desire a nice vacation with family which he could not afford earlier. So, I think there is a huge opportunity.
We have a very healthy pipeline of properties. We opened 22 hotels in the past 24 months and expect to open 25 hotels in the next 24 months.
Q/ What others call ‘asset light’, you called ‘asset right’. Obviously, you think that managed hotels is the way forward.
A/ The share of managed properties has improved. And we have big plans. Almost one hotel a month. The question always will be, how do you differentiate yourself? That lies in our sustainability credentials.
Let me share an anecdote. We have experienced individuals coming to our hotel in Delhi asking, ‘if I do a wedding of so many people, how much of carbon footprint will I create? How many trees do I need to plant to offset it?’ And we did the calculation, gave it to the guest. He paid for those number of trees and he put up a standee at the wedding saying ‘Carbon neutral wedding!’
That is one differentiation. Second, I think I’m very proud that we have iconic cuisines. Third aspect is the standards of service that we have developed. So, service, F&B and sustainability are the key strengths, besides the hardware, the property and so on, so forth is what the consumer will differentiate.
Q/ So, in a way, ITC is not just asset right, it is also future right.
A/ For me, future right is also about future tech, innovation, climate positive and being inclusive.