Tata Consumer Bets On Innovation To Enhance Margin
The number of new products on shelves is up two times this year for Tata Consumer Products.
Tata Consumer Products Ltd. has accelerated the pace of new launches with a focus on premiumisation to enhance margins and drive profitability.
The number of new products on shelves was up two times this year so far compared over the previous and revenue from innovation is up 16% year-on-year, Vikas Gupta, head of global R&D at the company, told BQ Prime.
The company is using 'online-first' strategy to launch new products before making them available at brick-and-mortar stores, Gupta said. That increased e-commerce share of FMCG sales.
Currently, the new product launches on e-commerce contribute 11% to revenues. Overall, the new products comprise 2.7% of the sales. The tea-to-salt maker aims to increase new products' contribution to 3.5% of sales by the end of FY23 with a target of 5% in two-three years.
"Historically, we were category focused, so we had teams aligned for tea-coffee business looking at food business in a very conventional way," said Gupta. "But we have realised that may not be the best model for us to look at as we grow in the organisation. So, we have shifted from category-specific development to capability-specific structure."
Tata Consumer Products has restructured the research and development capabilities of its Bengaluru centre to drive innovation. It houses dedicated product development and analytical labs, with packaging innovation enabling quicker innovation and roll-out of its new products.
The company is focusing on various themes such as investment in consumer science and sensory skills and is looking at how health and wellness as a platform can be leveraged going forward, said Gupta.
The Tata Group firm made three launches per month on an average in the first half of the ongoing fiscal. These, Gupta said, are in new categories and white spaces.
In the foods category, the company launched new plant-based meat variants, noodles and salt with added zinc. In the ready-to-drink category, the company introduced new fruit and jelly-based drinks, honey and preserves while in the beverages segment it was cold coffee, saffron tea and coffee café special.
Gupta hinted a new product in the mass-premium salt category is likely to be available in the markets in two months. "Currently, it is in the production stage," he said, without divulging further details. In the months to come, Tata Consumer also seeks to enter new protein-based segments and other categories where there is "decent revenue and good margins".
From Hindustan Unilever Ltd. to Nestle Ltd., consumer goods makers have been focusing on premium and niche launches to cushion margins and beat the slowdown in demand.
Nestle, for instance, entered the pet care business while HUL, known for its mass-market focus, has accelerated premium launches. The maker of Surf Excel and Rin has seen its premium lotion-to-detergent drive growth.
"Companies may re-focus on the mass segment when the macro situation further improves," said analysts at ICICI Securities in a note last month.
Several companies went easy on new launches in the last two years given the Covid-related supply issues as well as reduced consumer spending. Even as market conditions have improved, both companies and shoppers are now facing unprecedented inflation, dealing a blow to FMCG margins.