Here’s why the maker of Sundrop Oil and Act II popcorn is undeterred by high inflation and changing consumer sentiment in the FMCG category
We see our current categories of Ready to Cook, Ready to East Snacks and Spreads growing at about 15%: Asheesh Sharma of Agro Tech Foods Ltd
On general inflation and consumer sentiment, we stand to benefit purely by virtue of our value offerings and overall l...

Here’s why the maker of Sundrop Oil and Act II popcorn is undeterred by high inflation and changing consumer sentiment in the FMCG category

On general inflation and consumer sentiment, we stand to benefit purely by virtue of our value offerings and overall l...
  • Agro Tech Foods Ltd. recently announced its entry into the chocolate confectionery segment with the launch of the latest coconut Centered product under the brand name Sundrop Duo.
  • It is betting big on the confectionary segment this year.
  • We speak to Asheesh Sharma, Vice President - Marketing, Agro Tech Foods Ltd about challenges in the FMCG segment, its entry into the confectionery market and plans for FY23.
FMCG company Agro Tech Foods Ltd, maker of Act II popcorn and Sundrop Oil, has set its sight on the confectionery market to scale up and is aiming for a larger share in the market. The company is working on strengthening its production capacity by quadrupling it in the next three quarters.

FMCG as an overall category has witnessed significant highs and lows through the pandemic. Analysts expect the near-term growth of most FMCG companies to be muted on account of high raw material prices and inflation. However, ATFL is confident that it would remain unaffected because of its pricing structure.

ATFL’s Snack Foods business, which is spread across Ready to Cook, Ready to Eat, Spreads, Cereals & Chocolates, is also amongst the fastest growing FMCG businesses in India with a 15-year CAGR of close to 16%. In fact in FY’21, ATFL’s food business grew at about double the rate as compared to the other food companies present in the industry. Its best-selling products, Sundrop Oil and Act II popcorn, have helped the company become a market leader in two product categories.

Asheesh Sharma, Vice President - Marketing, Agro Tech Foods Ltd speaks to Advertising and Media Insider about ATFL’s diversified brand portfolio, foray into new categories, expansion plan, marketing strategy, dealing with macro challenges in the FMCG market and goals for FY23.

Q. How was 2021 for Agro Tech Foods?
2021 was a transformational year for ATFL as we took the advantage of elevated consumer spends in in-home consumption to increase brand spends and cost savings in operational costs such as travel to reduce the price premium vs competitors in premium edible oils. The combination of these two actions resulted in a solid 35% growth in our Foods business in FY’21 and we successfully addressed the softness that we had seen in Premium Oils in the last few years.

Q. You recently expanded the business into more categories like ready-to-eat, spreads and chocolate confectionery. How have you fared in those segments? Which category is bringing in the lion's share?
All three categories are showing very strong momentum as the economy normalizes. While we expect to see strong growth in each of them, Chocolate Confectionery is expected to give disproportionate growth in FY’23 and that is the reason why we are working to quadruple the capacity in the next three quarters. It is a large category in the region of about Rs. 15,000 crore and our product offering – Coconut Duo – clearly addresses an unmet consumer need for the large Indian population. As a segment, we doubt it will be less than Rs. 500 crore in some years and probably more likely to be in the region of about Rs. 1000 crore.

Q. With your recent foray into the chocolate category, what were the challenges you faced since people are today conscious of portion control and are looking for more nutrition and affordability. How have you been able to crack that?
One of the biggest challenges while entering into the chocolate confectionery segment for us at ATF was to address the increasing health concerns of the people while consuming chocolates and we are delighted to share that our new Sundrop Duo has proved to be a value-added proposition in the fiercely competitive chocolate confectionery segment. It is a delicious offering and is a unique fusion of healthy-meets-tasty with coconut nutrition in the center, wrapped around chocolate outside. Keeping our consumers’ growing health concerns in mind, Sundrop Duo has been made with 30% less sugar and comes in varied pack sizes starting as low as a 9.5g bar priced at Rs 5 to control the portion size of an individual while consuming chocolates.

Q. What are some of the trends that you are expecting to see in the FMCG segment this year?
With increasing normalcy we expect that the total amount of time that consumers are spending at home will considerably change in the next 12-18 months and this will have a structural impact on consumption. For example, we expect people to spend a lot more time outside the house – working, travelling etc. – and as a consequence we expect to see exponential growth in our Ready-to-Eat portfolio including Ready-to-Eat Snacks, Cereal Snacks and Chocolate Confectionery. Similarly, since consumers will now be spending less time at home, we expect them to do less in-home cooking and ordering e.g. purchases from Food Aggregators. The latter could impact the growth of the Ready-to-Cook sections of our business. However, since this is something we have been expecting, we have (a) significantly increased our media spends in the last 2 years – our Media Spend in FY’21 and FY’22 combined is about 20% higher than what we spent in the 3 year period from FY’18 to FY’20- resulting in a significant increase in the consumer base as we exit the pandemic which will sustain growth and (b) expanded our RTC portfolio with the introduction of Mini Meal Kits with a huge runaway for growth. Both of these will ensure that we continue to deliver top tier growth in all parts of the Foods business.

Q. You are one of the fastest-growing FMCG companies in India. Can you tell us what has worked in your favour at a time when the FMCG industry is facing several challenges?
We have a unique growth model which effectively leverages innovation to meet unmet consumer needs with a strong value proposition supported by moderate A&P spends. At a high level therefore, we get about half our growth from A&P spends and the other half driven purely by innovation. This would be in comparison to most of our peer group which will depend heavily only on A&P and this is what has enabled us to deliver a consistent growth rate in the Foods business of almost 2 X of most other Companies in this space.

Q. How are you planning on sustaining this growth this year?
We have a historical Foods Growth Historical CAGR about 15-20% and with the entry that we have made in the last 2 years into Breakfast Cereals, Chocolates, Chocolate Spreads and Meal Kits we see this rising further to the extent of about 20-25% per annum. Specifically, we see our current categories of Ready to Cook, Ready to East Snacks and Spreads growing at about 15% with the additional top up provided by Breakfast Cereals and Chocolate Confectionery which will add another 600-1000 basis points to take us to 20-25% Growth. To give perspective in our planning for FY’23 we are already working towards doubling our current Chocolate capacity in Quarter 1 FY’23 and then doubling again in Q3, FY’23. Similarly, we are making capital investments to automate and thereby increase output and reduce manufacturing costs in our Meal Kits lines. Much of this is possible only because of our largely in-house manufacturing model which enables powerful network effects as you translate learnings from one category to another. Now that we are competing in 5 different Foods categories all built from scratch, this network effect provides an almost seamless and endless flow of innovation. In a manner of speaking therefore we are almost spoilt for choice as compared to Companies which rely on 3 P manufacturing and therefore do not have this in house capability.

Q. Analysts expect the near-term growth of most FMCG companies to be muted on account of high raw material prices and inflation. Do you think it will be a challenge for you, how are you planning on tackling it?
On commodity costs, we believe that this will depend on how Companies have responded to the pandemic. Those who have chosen to invest during the pandemic and are finishing FY’22 with strong growth rates will have a very good year since commodity costs in Q1, FY’23 are unlikely to be higher than those of Q1, FY22. If this is true, then the strong Volume momentum will deliver significant incremental margins in the P&L since the base costs will still be contained to PY levels. Our belief is that we are solidly in this category leading us to derive significant confidence for the year ahead.
On general inflation and consumer sentiment, we do stand to benefit purely by virtue of our unmatched value offerings and overall low-cost structure. And the reason for this is that in each of the categories and products we compete in we offer unmatched value as a consequence of our overall low-cost structure. Accordingly, any desire by the consumer to explore better value options will offer an accelerated trial opportunity for our brands and therefore generate additional growth.

Q. As per media reports, prices of soybean oil have gained 12%, contributing to a surge in global food inflation to near all-time highs, which is likely to put a strain on Indian oil brands. How are you planning on navigating through this challenge?
Edible Oils prices in general move with the commodity input prices. In addition, we are fortunate that in the second half of FY’21 we did a significant price realignment for our Premium Edible Oils brands and that is the reason why we have largely been able to hold Volumes and Gross Margins in the Edible Oils category because we are benefiting from the improved price premium to competition.

Q. What is your larger marketing strategy for the company? How has the company and brands’ communication evolved over the duration of the pandemic?
The primary objective of the company is to drive penetration. Our mantra has always been to offer our consumers differentiated products with good value. With the onset of COVID-19 pandemic and people starting to spend more time at home, we focused our communication on in-home consumption in order to persuade people to make their home the cinema and continue experiencing it at home & indulging with our offering without stepping out of their houses.

Q. What is your marketing budget earmarked for this year?
Our A&P Spends are currently a little below 7% of food sales which is an average of FY’21- FY’22. We would ideally like to be between 7-8% on a long-term basis.

Q. What does your media strategy look like? Which medium gets your lion's share?
Our media strategy for marketing our products comprises promotion on television along with digital. However, the lion’s share largely goes to the television and digital just goes as an add-on to it.

Q. What would be some of your larger focus areas for this year?
We will continue to evolve and offer consumers with our differentiated offerings in all the 5 food categories that we operate in, however our major focus for this year will remain on the new chocolate confectionery and the meal kits offered under our brand Sundrop.