LOGISTICS AND SUPPLY CHAIN MANAGEMENT
LOGISTICS AND SUPPLY CHAIN MANAGEMENT IN ITC
XLRI INSTITUTE OF MANAGEMENT, JAMSHEDPUR
WITH GREAT PLEASURE, WE EXTEND OUR GRATITUDE
TOWARDS PROF. DR.T.A.S.VIJAYARAGHWAN JI, UNDER WHOSE
VALUABLE GUIDANCE, CONSTANT INTEREST AND ENCOURAGEMENT WE
HAVE BEEN ABLE TO COMPLETE THE PROJECT SUCCESSFULLY.
THIS COOPERATION IS NOT ONLY USEFUL FOR THIS PROJECT
BUT WILL ALSO BE A CONSTANT SOURCE OF INSPIRATION FOR
US IN THE FUTURE.
WE ARE ALSO THANKFUL TO ALL THOSE WHO HELPED US
CONSTANTLY IN THE PREPARATION OF THIS PROJECT DIRECTLY
ITC is one of India's foremost private sectors companies with a market capitalization of nearly US $
15 billion and a turnover of over US $ 4.75 billion. ITC is rated among the World's Best Big
Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among
India's Most Respected Companies by Business World and among India's Most Valuable Companies
by Business Today. ITC also ranks among India's top 10 `Most Valuable (Company) Brands', in a
study conducted by Brand Finance and published by the Economic Times.
ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging,
Agri- Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel,
Greeting Cards, Safety Matches and other FMCG products. While ITC is an outstanding market
leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports,
it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery,
Branded Apparel and Greeting Cards.
As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly
nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond
the market". In his own words: "ITC believes that its aspiration to create enduring value for the
nation provides the motive force to sustain growing shareholder value. ITC practices this
philosophy by not only driving each of its businesses towards international competitiveness but
by also consciously contributing to enhancing the competitiveness of the larger value chain of
which it is a part." ITC's diversified status originates from its corporate strategy aimed at creating
multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution
reach, superior brand-building capabilities, effective supply chain management and acknowledged
service skills in hotelier. Over time, the strategic forays into new businesses are expected to garner a
significant share of these emerging high-growth markets in India.
ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the
country's biggest foreign exchange earners (US $ 2.8 billion in the last decade). The Company's 'e-
Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by
empowering Indian farmers through the power of the Internet. This transformational strategy, which
has already become the subject matter of a case study at Harvard Business School, is expected to
progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the
Company's marketing reach.
ITC's wholly owned Information Technology subsidiary, ITC InfoTech India Limited, is aggressively
pursuing emerging opportunities in providing end-to-end IT solutions, including e-enabled services
and business process outsourcing.
ITC's production facilities and hotels have won numerous national and international awards for
quality, productivity, safety and environment management systems. ITC was the first company in
India to voluntarily seek a corporate governance rating.
ITC employs over 21,000 people at more than 60 locations across India. The Company continuously
endeavours to enhance its wealth generating capabilities in a globalizing environment to consistently
reward more than 3, 95,000 shareholders, fulfil the aspirations of its stakeholders and meet societal
expectations. This over-arching vision of the company is expressively captured in its corporate
ITC was established on August 24, 1910 as the Imperial Tobacco Company of India Limited
in Kolkata. Initially, the company was involved in the trading of imported cigarettes.
In 1925, in a backward integration move, the company started a packaging and printing
The name of the company was changed to India Tobacco Company Limited (I.T.C. Ltd.) in
In 1975, I.T.C. Ltd., through ITC-Welcome group, tied up with the US-based Sheraton
Corporation to enter the hospitality industry. It acquired its first hotel in Madras (later
renamed Chennai) in Tamil Nadu and called it the Welcome group Chola Sheraton.
I.T.C. Ltd established ITC Bhadrachalam Paperboards Ltd. (IBPL) in 1975. The company
started production at its integrated pulp and paper/board manufacturing facility at
Bhadrachalam, Andhra Pradesh, in 1979.
In 1990, I.T.C. Ltd. set up an International Business Division (IBD) for export of
I.T.C. started a greeting cards business under the brand name Expressions in the year 2000.
In the same year, I.T.C. also entered the fashion retailing business by extending its well
known cigarette brand Wills. The retail outlets were called Wills Lifestyle and offered
premium leisure wear for men and women under the Wills Sport brand.
In September 2001, the company was renamed ITC Ltd (without full stops, and with no
meaning attributed to the alphabets).
In 2001, ITC made an entry into the foods business.
In 2002, the company launched another clothing brand, John Players, which targeted the
In 2004, ITC was one of eight Indian companies to make it to the “Forbes ‘A’ List”8 which
featured 400 of “the world’s best big companies”.
In Oct 2005, ITC has launched an exclusive line of prestige fine fragrances and personal care
products under the Essenza Di Wills brand.
In late 2007, ITC launched Fiama Di Wills soaps and shampoos following the success of
Essenza Di Wills.
In Dec 2007 ITC launches ECF (Elemental Chlorine Free). ITC is the first and only Company
in India using the ECF technology.
• Sustain ITC's position as one of India's most valuable corporations through world-class
• Create growing value for the Indian economy and the Company's stakeholders.
• To enhance the wealth generating capability of the enterprise in a globalizing environment
• Deliver superior and sustainable stakeholder value.
ITC's Core Values
The company’s Core Values are aimed at developing a performance-oriented organization that is
highly customer focused and also creates value for those holding stake in it. It fully understands that
it has a commitment to its stakeholders to act as a guardian of the company from stakeholder’s point
of view and deliver results in a manner that actualizes stakeholder’s interest on a long-term basis.
It also delivers on the commitment to its customers by consistently addressing their needs on product
quality, value and overall satisfaction. It respects the values of people and also encourages
individuals to pursue their dreams, values their differences and helps them to experiment in the
pursuit of various opportunities.
ITC firmly believes in the concept of Excellence with their mantra being, “we do what is right, do it
well and win. We will strive for excellence in whatever we do”. It is constantly in the pursuit of better
and newer products, processes, services and management practices. Apart from the interest of
shareholders they also address their commitment to the nation to generate economic value, at the
same time ensuring that in achieving these goals no compromises are made whatsoever in complying
with rules and regulations as specified by law.
ITC believes in practicing ethical behaviour among the corporate citizen. The company follows an HR
policy that is regulated by Teamwork, Trust, Collaboration, Mutuality, Meritocracy, Objectivity,
Collaboration, Self-respect and Human-dignity. It is also deeply committed to make the company a
gender friendly place for each individual while also ensuring enhancement of equal opportunities for
men and women, preventing sexual harassment of any form and the adherence to good employment
practices. It is ensured that the interest of the company is foremost and in this context acceptance of
any kind of gifts or payments from suppliers or customers is viewed as a serious breach of company
discipline. And such acts are also considered as damaging to the reputation of the company.
High standards of house keeping and hygiene are followed to ensure excellent physical working
conditions. It is understood that all the directors, senior management and employees shall conduct
themselves in an honest manner and avoid any conflict of interest.
The top officials and employees of ITC believe that ITC provides them freedom at work and resources
to experiment. Employees take pride in working for ITC for its work culture, environment, and the
way people are treated. They are consulted before a new projectsystem is introduced and their
concerns and suggestions addressed. ITC also gives a lot of input to develop their skill and career.
They give utmost importance to equal opportunities, better work environment.
ITC has a three-tier management structure
At the top are Chairman and Board of Directors, who are responsible for the strategic supervision of
ITC, its wholly owned subsidiaries and their wholly owned subsidiaries. The ITC board is a balanced
board comprising Executive and Non-Executive Directors. The Board ensures that the Company has
clear goals relating to shareholder value and its growth. It sets strategic goals and seeks
accountability for their fulfilment. There are four board committees, namely, the Audit Committee, the
Nominations Committee, the Compensation Committee and the Investor Services Committee.
At the second level is the Corporate Management Committee, which is responsible for the strategic
management of the company's businesses within Board-approved direction/framework. It comprises
all the Executive Directors and three or four key senior members of management.
Third level consists of divisional CEOs of each business assisted by their own divisional management
committees. Corporate Functions of the Executive Management Team includes Planning and
Treasury, Accounting, Legal, Secretarial, Human Resources, Communications, Internal Audit and
Formal 3-tiered governance structure
The company’s organizational structure and governance processes are designed to support effective
management of multiple businesses while retaining focus on each of them." This three-tier governance
structure ensures that:
For and on behalf of the shareholders the company believes in incorporating strategic governance in
its work culture so as to ensure that despite being free from involvement in the task of strategic
management of the Company, it can be conducted by the Board with objectivity, thereby sharpening
and ensuring accountability of management;
With mundane tasks of everyday executive management being delegated the management remains
focused on issues of immediate importance;
The Executive management of the individual businesses that are free of handling strategic
management responsibilities of ITC as a whole is then able to channelize their energies and time in
enhancing the effectiveness and overall growth of their individual units.
Corporate Governance as defined by ITC is a systemic process by which companies
are directed and controlled to enhance their wealth-generating capacity. A company employs vast
sums of societal resources during this process of wealth generation. ITC is of the firm belief that the
governance process being followed should ensure that these resources are used optimally to meet the
aspirations of its stakeholders and society. This is further reflected in the deep commitment of the
company to contribute to the ‘Triple Bottom Line’, which is the development of the nation’s economic,
ecological and social resources.
The company believes in empowering the executive management. But corporate governance ensures a
system of checks and balances to ensure that these powers that are bestowed upon the executive
management are used in a responsible manner so as to meet shareholder and societal expectations.
The core strengths of ITC's governance philosophy are trusteeship, transparency, empowerment and
accountability, control and ethical corporate citizenship. The practice of each of these creates the
right corporate culture that fulfils the true purpose of Corporate Governance.
Overall, the structure of ITC has high complexity because of horizontal differentiation within the
organization. The most visible evidence is that of specialization and departmentation. Complexity also
increases because of spatial differentiation.
The ITC Code of Conduct, as adopted by the Board of Directors, is applicable to all Directors, senior
management and employees of the Company. This Code is derived from three interlinked fundamental
principles, viz. good corporate governance, good corporate citizenship and exemplary personal
conduct. The Code covers ITC's commitment to sustainable development, concern for occupational
health, safety and environment, a gender friendly workplace, transparency and audit ability, legal
compliance, and the philosophy of leading by personal example. Since non-adherence to the code is
brought to the attention of the immediate reporting authority, formalization is also there in ITC.
Decision-making is decentralized, as the company believes in giving executive freedom to
the management to drive the enterprise forward without undue restraints but this freedom of
management should be exercised within a framework of effective accountability.
Looking at the structure and culture of ITC, we can say that its design is based more or less on the
Divisional Structure. ITC has a diversified presence in different industries and each of its businesses
act as an autonomous unit which are coordinated by the top level, i.e. the board and corporate
management committee. The divisional managers are responsible for performance and hold complete
strategic and operating decision-making authority. The top management provides support services to
the divisions. It acts as an external overseer, evaluating and controlling performance. Hence the top
management is free from being concerned with the day-to-day operating details so they can pay
attention to the long term. Big picture, strategic decision making is done at the top level.
Areas of Diversification
ITC has transformed itself from a leading cigarette manufacturer to an umbrella group that offers a
diversified product mix to enhance its brand image and reduce dependency on tobacco related
products. It has forayed into the hospitality service industry and has become a major player in the
hotels segment. Its position in the FMCG (fast moving consumer goods) business is also on a growth
curve; especially its confectionery and biscuits which are slated to achieve the top ranks among its
peers. It has made heavy investments to strengthen its IT (information technology) segment and to
compete with the big players like Infosys and Wipro. Although the ITC group is marketing its image
as an ideal corporate citizen and a company that takes its social responsibility seriously, it still earns
80% of revenues from selling cigarettes and other tobacco related products.
The major areas in which ITC has diversified are:
• Lifestyle Retailing
• Greetings and stationery
• Safety Matches
• Incense sticks
Paperboards and Packaging
• Paperboards and specialty papers
• Agri- exports
Restructuring and Rationalising
ITC in FMCG Sector
ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a
leadership position in every segment of the market. It's highly popular portfolio of brands includes
Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol
The Company has been able to build on its leadership position because of its single minded focus on
value creation for the consumer through significant investments in product design, innovation,
manufacturing technology, quality, marketing and distribution.
All initiatives are therefore worked upon with the intent to fortify market standing in the long term.
This in turns aids in designing products which are contemporary and relevant to the changing
attitudes and evolving socio economic profile of the country. This strategic focus on the consumer has
paid ITC handsome dividends.
ITC's pursuit of international competitiveness is reflected in its initiatives in the overseas markets. In
the extremely competitive US market, ITC offers high-quality, value-priced cigarettes and Roll-your-
own solutions. In West Asia, ITC has become a key player in the GCC markets through growing
volumes of its brands.
ITC's cigarettes are produced in its state-of-the-art factories at Bengaluru, Munger, Saharanpur and
Kolkata. These factories are known for their high levels of quality, contemporary technology and
ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of
the Kitchens of India brand. A more broad-based entry has been made since June 2002 with brand
launches in the Confectionery, Staples and Snack Foods segments.
For ITC, the packaged foods is an ideal business to utilize ITC's proven strengths in the areas of
hospitality, branded cuisine, contemporary packaging and sourcing of agricultural commodities.
ITC's world famous restaurants like the Bukhara and the Dum Pukht, nurtured by the Company's
Hotels business, demonstrate that ITC has a deep understanding of the Indian taste and the expertise
required to translate this knowledge into delightful dining experiences for the consumers. ITC has
stood for quality products for over 98 years to the Indian consumer and several of its brands are
today internationally benchmarked for quality.
All products of ITC's Foods business available in the market today have been crafted based on
consumer insights developed through extensive market research. Apart from the current portfolio of
products, several new and innovative products are under development in ITC's state-of-the-art
Product Development facility located at Bengaluru.
ITC has over the last 98 years established a very close business relationship with the farming
community in India and is currently in the process of enhancing the Indian farmer's ability to link to
global markets, through the e-Choupal initiative, and produce the quality demanded by its customers.
This long-standing relationship is being utilized in sourcing best quality agricultural produce for
ITC's Foods business. The Foods business is today represented in 4 categories in the market. These
1. Ready To Eat Foods
4. Snack Foods
In order to assure consumers of the highest standards of food safety and hygiene, ITC is engaged in
assisting outsourced manufacturers in implementing world-class hygiene standards through HACCP
certification. The unwavering commitment to internationally benchmarked quality standards enabled
ITC to rapidly gain market standing in all its 6 brands:
1. Kitchens of India
Recently, on Aug 1, 2008, ITC Foods has drawn up plans to extend its Kitchen of India brand to
frozen foods. ITC’s Branded Packaged Foods business continues to expand with sales growing by
23% over the previous year. Apart from the development costs of new products, the business has had
to contend with the recent economic slowdown and severe cost increases in input commodities
including wheat, vegetable oil, maize and skimmed milk powder, in addition to the soaring fuel prices.
Having acquired reasonable scale in a relatively short span of time, the business is progressively
focusing on consolidating the portfolio in certain categories, improving market servicing and driving
supply chain efficiencies.
Market and Competition
Indian Foods market is a monopolistic market. There are many competitors in all the categories and
although they all have similar products available at similar prices, they are trying to prove
themselves different through their marketing strategies. However, entry to this business is easy and
ITC has utilized this fact very efficiently to their benefit as they entered into the several categories
among this Foods business.
READY TO EAT
ITC entered into the branded and packaged foods business in with the launch of Kitchens of India
brand. In 2004, the company launched KoI brand fruits and spice conserves and cooking pastes. The
fruits and spice conserves, were developed jointly with Karen Anand, a food expert. Priced at Rs. 70,
these were targeted at the premium segment. The KoI cooking pastes, which were priced at Rs.30 for
a 100g pack, also targeted the high-end market. Multi-purpose cooking pastes were also launched
under the Aashirvaad brand and these were priced at Rs. 10 for 80g pack. The manufacturing of these
products was outsourced to contract manufacturers for saving the operating cost.
ITC entered the branded spices market in 2005 and the Instant Mix segment in 2006, both under the
Aashirvaad Brand. As on April 2006, the total turnover in the Indian ready-to-eat and ready-to-cook
segments was only around Rs. 700 million, but it continued to post an annual growth of 20%. By early
2006, though ITC had captured a 35% market share in the ready-to-eat segment, MTR was the clear
market leader with close to 60% in market share. ITC exported 40-50% of KoI brand products (in
terms of volumes) to the US, Canada, the UK, Switzerland, and Australia.
In May 2006, ITC planned to introduce ten more varieties under the KoI brand within a price range
of Rs. 35 to Rs. 98. In 2007, some new products have been launched under Ready To Eat category like
chutneys, curries, conserves, biryanis (Noor Mahal, Bhori Biryani and some new range of products
under Gharana (Paneer Malai, Keema Mutter). After launching all these products ITC FOODS is
looking to share 50 to 60% of market by 2008-2009.Following are the major competitors ITC is
competing with in Ready to Eat category:
Gits produces the selected range of popular ready to cook and instant
Gits foods that cover a range of ethnic Indian cuisine-and where the
recipes have "Global pallete acceptance".
Offers packaged Bhel puri chats such as Sev Puri, Chana Masala,
Haldirams Samosa, Pakoras, Alu Tikki, Pao Bhaji, Gol Gappa, Dhokla among
Offers packaged sweets,syrups,namkeens, cookies, pickles, aloo
Ethnic Kitchens Masala, Bhujia, Bhelpuri, Chana Dal, Kajui Ladoo and many more
MTR foods currently comprise twenty-two delicious and completely
authentic Indian curries, gravies and rice.
Priya has a range of popular traditional recipes starting from Dal
Makhani, Navaratan Kurma to Palak Paneer, Paneer Butter Masala,
Punjabi Chhole and Rajma Masala along with true southern
delicacies like Andhra Veg Pulav, Mango Dal, Gongura Dal.
Market Share - Ready To Eat
Confectionary market in India is about Rs.2500 crore. It is loosely divided into seven categories:
1. Hard boiled candies
4. Chewing gum
5. Bubble gum
ITC has currently in market with its two brands “Mint-o” and “Candyman”. ITC’s Mint-O fresh
secured a 17% share of Indian cough lozenges market ahead of former leader Perfetti which only
achieved 14.3% with chloromint. The Indian giant marked the confectionary sector in 2002 and has
only two brands “mint-o fresh” and “Candyman”. But in overall confectionary market they are
lagging behind having just 3% market share as compared to market leader Perfetti with more than
37% market and providing larger number of brands.
Perfetti van melle ITC Ltd. Nestle Cadbury
Alpenliebe Candyman . Kit Kat Bubbaloo
. Kit Kat Lite
Alpenliebe Minto . Milky Bar Dairymilk
Creamfills . Munch Eclairs
Alpenliebe Lollipop . Milk Chocolate
. Fun Bar % Star
Big Babol . Polo
. Polo Power mint
. Munch Pop Choc Perk
Center Fruit . Éclairs
Market Share - Confectionery
Perfetti Van Melle
7% 11% Others(Parle,
Joyco, HUL etc.)
ITC entered the staples market in 2002 with wheat flour under the Aashirvaad brand. In 2003, ITC
extended the Aashirvaad brand to edible salt. By early 2006, ITC had a 40% market share in the Rs. 6
billion packaged flour business. Its closest competitor HLL’s Annapurna brand was trailing behind
with a market share of 18%. The market was growing at 12%. Under its Aashirvad brand ITC
FOODS also launched salt, mixers, ready to cook pastes. In the Rs. 4 billion organized salt market (as
of 2006), Tata Salt was the market leader with a 28% market share. ITC had only a 5% share of the
market. Other players in this business are HLL (Knorr Annapurna), Nirma (Shudh), Marico
Industries (Saffola), etc.
Market Share - Staples
21% Mahal, Local
Indian biscuit market is estimated to be around 5000 crore. Biscuit industry in India in the organized
sector produces around 60% of the total production, the balance 40% being contributed by the
unorganized bakeries. ITC with its premium product, SUNFEAST, is acquiring a big share of market.
Within few years, they are able to get 12% share of the market.
Britannia ITC Ltd (Sunfeast) Parle Priyagold
Tiger Marie Parle-g Butter Bite
Nutrichoice Junior Dream cream Krack-Jack Classic Cream
Good Day, Milky Magic Monaco Butter Lite
50 50, Fit kit Kreams Big Boss
Treat Choco Nut Hide and Seek Marie Lite
Pure Magic, Butter Nut Milk Shakti Magic Gold
Market Share - Biscuits
Snacks industry overview
Snacks industry in India is worth 1800 Crores of Rs. and growing at 10% is one of the largest markets
in the world, out of which potato chips holds the major market share of around 85%.
Product Price Product Price Product Price
(ITC Ltd) (Frito Lay) (Haldiram)
Bingo Lays Namkeen
Rs. 5 Rs. 5 Rs. 5
Rs. 10 Rs. 10 Rs. 10
Rs. 20 Rs. 20 Rs. 20
Market Sahre - Snacks
ITC Ltd. started their food division in the year 2001. Since then the growth has been fantabulous.
Their investment has increased year by year considering the scope of food market. However, they
could not sustain the constantly increasing profit margins, mainly because of their valuable
investment in market research, surveys, R&D, costly advertisements and expansion plan. Moreover
they entered in a whole new market of food, but for this market they already had strong distribution
market, which they are using for their tobacco product. So considering all these factors and short
span of time period, surprisingly they did good job, particularly in snacks, biscuits, Ready to Eat and
Annual Results (ITC) ‐ In Rs. Crores
Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04
Sales 13,947.53 12,369.30 9,790.53 7,639.45 6,470.44
Operating profit 4,403.94 3,956.41 3,327.38 2,792.56 2,360.59
Interest 4.61 3.28 11.93 42.43 24.79
Gross profit 5,010.23 4,289.62 3,601.53 2,985.94 2,560.68
EPS (Rs) 8.28 7.18 5.95 8.79 6.43
Annual results in details
Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04
Other income 610.90 336.49 286.08 235.81 224.88
Raw material 4,639.35 5,644.34 4,124.90 2,837.40 2,572.78
Employee expenses 733.32 630.15 541.40 467.26 416.48
Other expenses 4,176.61 2,397.88 1,938.52 1,610.08 1,310.04
Provisions made ‐ ‐ ‐ ‐ ‐
Depreciation 438.46 362.92 332.34 312.87 241.62
Taxation 1,451.67 1,226.73 988.82 836.00 726.21
Net profit / loss 3,120.10 2,699.97 2,235.35 2,191.40 1,592.85
Rate of Increase Sales profit raw material interest
ACTORS AFFECTING NET PROFIT
2005 18.07 18.30 37.58 10.29% 12.19% 71.16%
2006 28.16 19.15 2.01 45.38% 15.87% ‐71.88%
2007 26.34 18.90 20.79 36.84% 16.39% ‐72.51%
2008 12.76 11.31 15.56 ‐17.81% 16.37% 40.55%
Projection for 2009 21.33 16.92 18.98 18.67% 15.21% ‐8.17%
The selling of 13544 crores, with net turnover at 3900 crores registered a growth of 18.4% driven by
the non-cigarette business, which grew by 29% due to new investments in FMCG market. Overall
projection for the year 2009, for sales is projected to be at growth rate of 21.33%.
SALES OF FOOD SECTOR AND ITS PROJECTION:
2006 2007 2008 2009(projected)
Sales (crores) 1230.54 1698.53 2526.60 3410
The foods business is expanding rapidly with sales growth of 35% in the year 2007. This range of
product includes more than 150 different products. The growth of this sector in terms of product
categorization is as follows.
Sales in biscuits category grew by 55%.
Sales in staples category grew by 52%
Sales in confectionary grew by 51%.
Sales in RTE grew by 35%
ITC Food is looking to expand its RTE category to maximize its profit.
ITC’S NEW CHALLENGES:
This food industry is the industry with very less profit margins. So low operation cost is the key. Also,
Indian middle class is price sensitive. In this area international, national and also regional
competition is very tough. With that wheat, petrol and labor cost is increasing day by day. Different
types of restrictions imposed by the government are also playing a vital role in reducing profit
margins. For example, exporting non-vegetarian foods out of India is restricted. To cover this up, ITC
is trying to reduce cost of its biscuits by acquiring mass production of wheat directly from farmers
through its e-chaupal initiatives. Also in this way ITC is able to reduce the price of its staples. As far
as Confectionary market is concerned, ITC is looking to launch its brand of chocolate in
collaboration with an American company. After analyzing the food sector, one can say that it is one of
the toughest market to compete in as all the market giants are already there.
GROWTH AND INVESTMENT PLANS:
This food sector is the most promising field and has already overtaken IT and PHARMACEUTICALS
Sector of India. Even Indian Government is looking to develop this sector. That’s the reason central
Government has already passed several projects for food parks. In this way FDI in this sector is
possible. Also government in its 2006 budget has reduced custom duty from 16% to 8% on packaged
food and also excises duty on instant food mixes. This will help ITC to be competitive in the market.
Recently ITC has started exporting packaged food from its Bangalore plant. It is also planning to
open one more new plant in Calcutta for Indian market. They are looking to add several products in
their RTE list which will be exported as well. Also in late 2007 ITC has acquired one Australian Plant
and seed technology industry. Through this they will provide highly valuable seeds and other
solutions to farmers in India, which ultimately will increase the productivity and cost effectiveness for
their staples and biscuits business.
Its turnover in the foods business was around Rs. 8 billion in 2005-06 which further increased to Rs.
10.2 billion in year 2006-2007.
ITC has decided to make an investment of 300 crores over a period of 5 years. ITC Foods has also
decided not to make heavy investments in manufacturing unless volumes pick up. As of today ITC has
invested 20 crores in R & D and planning to invest further 15 crores to produce new products in
Thus looking at all the strategy of ITC future investment and planning. The future investment plan is
Rate of Increase Sales Operating Profits Net Profit/loss
2005 18.07 18.30 37.58
2006 28.16 19.15 2.01
2007 26.34 18.90 20.79
2008 12.76 11.31 15.56
2009(Projected) 21.33 16.92 18.98
Rate of Increase of Sales w ith Projection for 2009
2005 2006 2007 2008 Projection for
Rate of Increase of O perating Profit w ith Projection for
20.00 19.15 18.90
2005 2006 2007 2008 Projection
Rate of Increase of Net Profit/Loss with Projection for
20.00 20.79 18.98
2005 2006 2007 2008 Projection
Major Strategies Adopted by ITC Foods
Entering the foods business was itself a strategic decision for ITC. While ITC’s core business,
tobacco, was under pressure owing to several factors like government bans on advertising and on
smoking in public places, hikes in the excise duty for cigarettes, and anti tobacco campaigns, ITC
planned to deploy its surplus in the packaged food business where it saw huge business potential.
Following are some of the strategies that ITC adopted to make its food business a success:
• Entering into less competitive or unexplored markets (Ready to eat, Staples, Wafers): When
ITC entered into the foods business in 2001, it focused on unleashing the areas where the
competition is very less or there is no competition. It started with packaged ready to eat food
and later extended that to Aashirvaad brand of edible salt and Atta. Recently ITC has
announced its desire to forge in the frozen foods category in the domestic market. Players in
this category are limited and ITC hope to exploit this fact. Also, in Bingo, although the
competition is tough but there is only one player with whom ITC has to compete i.e. Frito
Lay. This strategy has helped ITC to quickly establish itself in the above mentioned
• Distribution Network: ITC already had a huge distribution network due to its tobacco
business. ITC used this network to distribute their biscuits and wafers. This not only provided
a good launch to their products but also helped in boosting sales. Today, ITC’s Bingo and
Sunfeast are available at nearly 1.8 million outlets whereas Parle is available at only 1.5
• Market differentiation (Ready to eat, Biscuits): ITC started packaged foods business with the
KoI brand of ready-to cook products. They were positioned as premium products with target
groups including tourists, NRIs, etc. In Biscuits also, ITC launched differentiated products in
each and every segment. For e.g. it introduced an Orange Marie, a butterscotch cream
biscuit, chilli flakes in a biscuit and even honey flavor under the Sunfeast brand.
In March 2005, ITC Foods launched Sunfeast Pasta, a whole wheat based product targeted at
children. It was expected to compete with products like Nestle’s Maggie noodles. With this
strategy ITC built for itself new markets.
• Cost control strategy (all products): When ITC started the foods division, its main challenge
was to compete with the players who were already there. To overcome this challenge, ITC
realized that they have to offer products at a price which is either equal or less than what the
competitors are offering. To do this, they planned to capitalize by leveraging the strength of
the group’s other businesses. ITC’s printing and packaging business provided high-quality,
cost-effective, and innovative packaging. ITC also enjoyed cost advantages over its
competitors owing to its electronic procurement system called e-Choupal. This helped ITC to
compete with the best.
• Diversification of products (Biscuits, Wafers, and Ready to Eat): One of the ITC’s
successful strategies has been the method of diversifications among its various products. If we
talk just about Bingo, ITC has come up with 16 flavors in comparison to its competitor ‘Lays’
of ‘Frito Lay’ which has only 4 major flavors. Same is the case with Ready to Eat food
category and Biscuits. This strategy has helped ITC to attract a wide range of market.
• Extensive advertising (Biscuit, confectionary, wafers): Just like a Bollywood movie needs
good publicity to be a super hit, every new product launched in the market needs to be known
to the consumers before it is launched. Advertising is where ITC made the difference in
comparison to its competitors. They hired the best professionals and the best ambassadors in
the country to make their products famous. This is evident form the award winning marketing
campaign for Bingo and Minto Fresh. The tagline "Jab Laila ko karna tha impress to majnu
ne khayi mint o fresh" has stood the test of times and is still widely known and remembered.
Hiring the best people from the film industry and sports (Sharukh Khan and Sachin Tendulkar
for Biscuits, Rakhi Sawant for Minto Fresh) showed ITC’s urge to be the best.
On television, the company booked 10 to 15 spots per channel per day on youth channels such
as MTV and Star World, mass Hindi channels like Zee and Star TV, and news channels. It
also had around 20 spots on a variety of radio channels and advertised in most leading
national dailies. In the top-30 cities, over 1,000 outdoor hoardings advertised the product.
According to industry estimates, ITC spent close to Rs 100 crore on marketing.This kind of
promotion of products helped ITC to make its products known to everyone and now it was not
difficult to attract consumers.
• Regular introduction of new products (all products): Having acquired reasonable scale in a
relatively short span of time, ITC realized that, to remain in the competition it had to
introduce new products regularly. ITC has been expanding its distribution network
aggressively and also their product range. In biscuits and wafers range, it is launching new
products or flavours week after week. Same is the case with Ready to Eat and Kitchen of
• Innovation (all products): When the need to introduce new products arrived, ITC shifted its
focus on to the innovation. Also, ITC was innovative in identifying the market or niche for all
• Maintenance of freshness and hygiene (all products): ITC positioned its wheat flour on the
health & hygiene and value for money terms. Success in the staples business, especially in the
branded and packaged wheat flour business, depended on two factors – an effective
distribution network and the quality of the product. Therefore, ITC attempted to ensure that
the supply chain was responsive, and laid emphasis on making accurate sales forecasts using
inputs from distributors, sales personnel and a well-managed MIS system. To maintain
freshness of the product, the company strove to minimize the transit time by regulating the
shippers to maintain company-specific transit norms. The physical aspects of the supply chain
like warehouses and trucks were closely monitored to maintain cleanliness.
• From Analyzers to Prospectors (Biscuits): When ITC entered the biscuits market with
Sunfeast in 2003, with three varieties of biscuits - glucose, marie, and cream, they did what
any new player in the market does, imitating and emulating the leader that was Britannia.
Their strategy was to manufacture those products which are already a success in the market.
But, as ITC got hold of the market, it started to manufacture flavors which were never heard
of. This was the result of ITC’s desire to exploit new product and market opportunities.
All the above strategies and with the help of launch of Bingo in 2007, ITC finally tasted success in its
food business in 2008 when it became a profitable business for the first time since its launch in 2001
Effectiveness criteria Rating Remarks
Entered into food business because of the various constraints
in cigarette industry.
1 Flexibility 9
Launch of various new products in diverse categories in
accordance to the demand of the consumer market.
Outsourcing manufacturing of confectionary items,
acquisition of an Australian firm for new improved seeds, set
2 Acquisition of resources 8 up new plant in Haridwar, where there is no tax for first 5
Expanding size of work force by expanding target market
Goals are clear and well understood as they are clear about
3 Planning 7 the markets they want to enter in and the markets they do not
want to enter.(they didn’t enter into chocolates, milk products)
Combining various facilities to improve efficiency
(manufacturing along with printing and packaging)
Prices of almost all the products are at par with the
4 Productivity and efficiency 8 competitors. Also their selling has increased considerably at
an average rate of 20-25% in last 6 yrs. In 2007, At their
Haridwar plant they are able to get the more production with
the limited technology and machine utility which they had in
Employees are always consulted before a new project/system
5 Availability of information 8
Timely operations are carried out to maintain freshness of the
6 Stability 9
inputs (Transporters are fined in case of delay)
ITC leverage human capital for competitiveness by nurturing
knowledge, entrepreneurship and creativity
7 Skilled work force 9
It has a no. of training programs which helps the employees
gain exposure to the latest technologies and developments.
Competing Values Framework
Environment Culture Design Structure Leadership Leader’s role
Developmental Adhocracy Idealistic Prime mover
Rational Market‐oriented Rational Expert
Environment in which ITC foods division is operating is highly uncertain because of the immense
competition that they are facing in each category and due to the launch of new products and flavors
in each category every other day. It is also highly intense as the organization’s main strategy to
achieve their goals is through extensive marketing and for that they need to know how their products
are received in the market. To do this, they are conducting various surveys and also they are
launching their products only after a brief research of the market and trials.
ITC Foods’ aggressive effort to capture market share and heavy investments in manufacturing and
infrastructure suggests that they are focusing mainly on both of their short and mid term goals. Thus,
the current design of their organization is rational but as the environment is highly uncertain and
intense, they need to move towards a ‘Developmental’ design. The structure of the ITC Foods’
division is ‘market oriented’ because of the same reason that they are focusing into the market
deeply; but again as the environment is highly uncertain and intense, they need high flexibility within
the organization and hence should move towards an adhocratic structure. Leadership in ITC foods
division is rational as the leader is functioning logically in accordance to the market forces.
Branded Packaged Foods
ITC in Hotel Industry
ITC Limited entered the hotels business in 1975 with the acquisition of a hotel in Chennai, which was
rechristened Hotel Chola. Since then the ITC-Welcomgroup brand has become synonymous with
Indian hospitality. Today amongst India's finest and fastest growing hotel chains, it consists of over
70 hotels across as many destinations in India. These include super deluxe and five star hotels,
heritage palaces, havelis and resorts and full service budget hotels.
The 440-room ITC Maurya at New Delhi is not only amongst the leading business hotel in the
country, but is in a class by itself. Complete with the 'ITC One', the hotel has played host to a galaxy
of world dignitaries, including Bill Clinton and Bill Gates. In fact, even as he was leaving the White
House, the former US President nostalgically recalled the memories of a fabulous Indian meal he and
his family had at the Bukhara restaurant in the hotel.
Bukhara has been declared the Best Indian Restaurant in the world, by 'The Restaurant Magazine',
UK The 386-room ITC Maratha, opened in February 2001, is perceived as amongst the leading and
the finest properties in Mumbai, designed in a grandiose classic style, the hotel pays tribute to
Mumbai's colonial roots and the spirit of the Great Marathas.
In keeping with its plan to have a presence in every major business destination in India, ITC-
Welcomgroup unveiled one of Asia's finest business resort, the 238-room ITC Sonar in Kolkata on
December 31, 2002.
Another landmark hotel - the ITC Grand Central in Parel, Mumbai was formally inaugurated in
January 2005. This five star deluxe property with 242 suites and rooms offers international standards
of service, state of the art amenities and culinary excellence. ITC Mughal at Agra, a proud recipient
of Asia's first Aga Khan Award for Architecture, is an outstanding resort hotel, lavishly spreading
across 35 acres of beautifully landscaped Mughal gardens. ITC-Welcomgroup also pioneered a
holistic concept of "branded accommodation" in the hospitality industry. It was the first to launch the
powerful idea of a 'Hotel within a Hotel' by segmenting and branding the hotel services. It created the
exclusive 'ITC One', 'The Towers' and the 'Executive Club' each catering to the needs of the global
business traveller with unmatched quality and a range of services.
In 2007, ITC-Welcomgroup entered a new phase in its collaboration with Starwood Hotels & Resorts.
ITC-Welcomgroup now has an exclusive tie-up with Starwood in bringing its premium brand, the
‘Luxury Collection’, to India. The seven hotels which are part of this collection are: ITC Maurya in
Delhi, ITC Maratha in Mumbai, ITC Sonar in Kolkata, ITC Grand Central in Mumbai, ITC Windsor
in Bengaluru, ITC Kakatiya in Hyderabad and ITC Mughal in Agra. The agreement also includes the
rebranding of WelcomHotel New Delhi as a Sheraton, while the Chola and the Park in Chennai, and
the Rajputana in Jaipur retain their Sheraton connections. The Welcome Heritage brand brings
together a chain of palaces, forts, havelies and resorts that offer a unique experience. Welcom
Heritage endeavours to preserve ancient royal homes and the historical Indian grandeur, opulence of
romance, valour and adventure for the future Indian generations. Welcom Heritage Hotels, provide a
fine range of hotel services inside these architectural legacies present in Rajasthan, Punjab,
Himachal Pradesh, Madhya Pradesh, Uttaranchal, Jammu & Kashmir, West Bengal, Tamil Nadu,
Haryana and Karnataka.
ITC-Welcomgroup was also the first to brand its cuisine. The Bukhara, the Dakshin and the Dum
Pukht are today powerful cuisine brands, which delight connoisseurs in restaurants in several ITC
Welcomgroup hotels. Others included Dublin, West View and the Pan Asian. Fortune hotels are a
part of the well thought-out growth strategy that brings out the mid-level business and leisure traveler
under the ITC-Welcomgroup umbrella, offering full service properties without compromising on
quality. With a strong presence at Ahmedabad, Thiruvananthapuram, Calicut, Darjeeling,
Jamshedpur, Vapi, Hyderabad, Gurgaon, Indore, Ootacamund, Madurai, Jodhpur, Tirupati and Port
Blair, it will be shortly commissioning several more hotels across India.
ITC in Agricultural Industry
ITC's International Business Division (IBD) is the country's second largest exporter of agriproducts
with exports of over Rs. 1000 Crores (Rs. 10 billion). Its domestic sales of agriproducts are in excess
of Rs. 1500 Crores (Rs. 15 billion). It currently focuses on exports of :
• Feed Ingredients – Soyameal
• Foodgrains - Rice (Basmati & Non Basmati), Wheat, Pulses
• Edible Nuts - Sesame Seeds, HPS Groundnuts, Castor oil
• Marine Products - Shrimps and Prawns
• Processed Fruits - Fruit Purees/Concentrates, IQF/Frozen Fruits, Organic Fruit Products, Fresh
• Coffee & Spices - Coffee, Black Pepper, Chilly, Turmeric, Ginger, Celery and other Seed Spices
Although one of the relatively younger business divisions of ITC, it has, in a short span established
itself as a first-choice supply chain partner of several leading international customers. Its major
customers include Cargill, Marubeni, Toepfer, among others, who source agriculture commodities
and food products from India. Its customer relationship management has enabled it to achieve a very
high reputation for quality, reliability and value added services. ITC's unique strength in this business
is the extensive backward linkages it has established with the farmers. This networking with the
farming community has enabled ITC to build a highly cost effective procurement system. ITC has
made significant investments in webenabling the Indian farmer. Christened 'e-Choupal', ITC's web
plan for the farmer centres around providing Internet kiosks in villages.
Farmers use this technology infrastructure to access on-line information from ITC's farmer friendly
website. Data accessed by the farmers relate to the weather, crop conditions, best practices in
farming, ruling international prices and a host of other relevant information.
Currently, the 'e-Choupal' website - www.echoupal.com - provides information to farmers across the
nine States of Madhya Pradesh, Haryana, Uttaranchal, Uttar Pradesh, Rajasthan, Karnataka,
Maharashtra, Andhra Pradesh and Kerala. ITC plans to extend the 'e-Choupal' to cover 10 million
farmers across 100,000 villages covering 15 Indian states. Following the impressive success of e-
Choupal, the Company unveiled the first 'Choupal Saagar' near Sehore in Madhya Pradesh in August
2004. Eighteen more 'Choupal Saagars' have commenced operations in the states of Madhya
Pradesh, Maharashtra and Uttar Pradesh. The 'Choupal Saagar' is a rural hypermarket which
provides multiple services under one roof. It creates a platform for farmers to sell their produce.
Farmers can also buy quality products for their farm and household consumption from 'Choupal
Saagar'. These rural malls also provide farmers the invaluable additional services of soil testing,
banking, insurance, medical facilities and restaurant. Such mall, in synergistic combination with the
e-choupal network, serves as the core infrastructure to support ITC's rural distribution strategy. Over
the next 7-10 years ITC plans to open over 700 such hypermarkets. The business is progressing a
pilot project for retailing fresh fruits and vegetables. Three Choupal Fresh Cash & Carry Stores are
currently operational at Hyderabad, Pune & Chandigarh. The Company has set up a complete
warehousing and cold chain infrastructure for ensuring the availability of fresh products in the
market, besides direct linkages with the farmers for sourcing farm fresh produce.
In Processed Fruits category, ITC exports from HACCP Certified plants to Western Europe, North
Africa, Mid-East, Japan and North America, a wide range of Processed Fruits products made from
Mango (Alphonso, Kesar & Totapuri), Guava, Papaya, & Pomegranate for Industrial and Consumer
use. ITC is the leading Indian exporter of Organic Fruit Products Certified to European (EC
2092/91) & US (NOP) Standards.
Fresh Table Grapes & Pomegranates are sourced from ITC's EUREPGAP Certified Farmer groups
& retailed through prominent supermarkets like Sainsbury's & Albert Heijn in Europe , Daiei in
ITC's countrywide network of procurement teams, handling agents and contemporary warehousing
facilities enable it to source quality merchandise even at short notice. ITC's processors are
handpicked reliable outfits which ensure hygienic processing and modern packaging. Strictest quality
control is exercised at each stage to preserve the natural flavour, taste and aroma of the various agri-
ITC has been a significant exporter of seafoods from India since 1971. It exports frozen as well as
cooked shrimps and other seafood products to Japan, USA and Europe. Its well-known brands
include Gold Ribbon, Blue Ribbon, Aqua Kings, Aqua Bay, Aqua Feast and Peninsular. ITC's
International Business Division continues to use innovation as its core strategy to retain its position
as the one-stop shop for sourcing agri-commodities from India.
ITC’s e- choupal
ITC’s International Business Division, one of India’s largest exporters of agricultural commodities,
has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers
around the world on a sustainable basis. The e-Choupal model has been specifically designed to
tackle the challenges posed by the unique features of Indian agriculture, characterised by fragmented
farms, weak infrastructure and the involvement of numerous intermediaries, among others.
The Value Chain - Farm to Factory Gate:
‘e-Choupal’ also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of
low risk taking ability > low investment > low productivity > weak market orientation > low value
addition > low margin > low risk taking ability. This made him and Indian agribusiness sector
globally uncompetitive, despite rich & abundant natural resources. Such a market-led business model
can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher
productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and
higher quality and productivity. Further, a growth in rural incomes will also unleash the latent
demand for industrial goods so necessary for the continued growth of the Indian economy. This will
create another virtuous cycle propelling the economy into a higher growth trajectory
Choupal: A Time-Honored Tradition
The village of Dahod appeared to be an unlikely setting for a technological revolution. Located 25
kilometers south of Bhopal in India’s central state of Madhya Pradesh, Dahod was dominated by
soybean farmers who made their living as their ancestors did, harvesting their crop and selling it in
the local market yard. In Hindi, the word for this meeting place was choupal. The choupal
constituted an informal assembly, a forum that villagers could call their own, a place where
In 1998, International Business Division (IBD) had grossed Rs. 450 crore ($100 million) in
agricultural commodities sales, a marginal addition to the total Rs. 7701 crore ($2 billion) in sales
generated by ITC’s other divisions, which included tobacco, paperboard, retail, hospitality, and
foods, among others.
The soybean and its derivatives comprised two-thirds of ITC’s agricultural export business. ITC
sourced soybeans from farmers located throughout rural Madhya Pradesh. Madhya Pradesh (MP)
had been dubbed India’s “soyabowl,” as its farmers contributed 4 million of India’s 5 million tons of
soybean crop. ITC had had a 100-year relationship with farmers (based originally on the tobacco
industry) that gave it an integrated presence along the entire value chain, from procuring soybeans
from farmers and processing the beans in exclusively hired processing plants, to exporting the
processed soymeal via vessel loads and container shipments. When soybeans were processed, about
80% of the crushed bean was turned into soymeal, a high-protein extract that was added to poultry
and cattle feed. ITC exported soymeal to countries such as China, Pakistan, Bangladesh, and the
United Arab Emirates, as well as other parts of Southeast Asia. The remaining 20% of the soybean
material became edible oil, highly valued for its nutritional content and a very popular cooking
medium in the domestic market.
ITC had been successful in selling soybean oil domestically and processed soymeal internationally,
but both the input and output sides of the agricultural supply chain in India were still far from
efficient. The limited technological resources in India had constrained the dissemination of know-how
in rural farming communities. Farmers did not have access to quality inputs, such as sowing seeds,
herbicides, and pesticides, or information, such as accurate weather reports, that would help them
improve their crop quality as well as the process of bringing it to market. They did not reap financial
benefits from any profits made off the valuable soybean-derived materials. In fact, farmers were
losing 60-70% of the potential value of their crop, with agricultural yields only a third to a quarter of
Similarly, on the output side, middlemen clogged the supply chain, reducing profit margins for both
farmers and buyers such as ITC. Unfair practices affected the way the farmers were paid, the
weighing of the produce, and the amount of time taken by the process. This drastically increased
transaction costs, slashing potential profits for the farmer.
Both farmers and soybean processors were locked in an unproductive cycle. Farmers had limited
capacity for risk and therefore tended to minimize their investment in crops, lest inclement weather or
pests destroy their investment. This, however, meant a lower-value crop, which translated into slim
margins for both the processor and the farmer. With such risk aversion, farmers were also loath to
experiment with new farming methods. Since this meant that few new sources of value were found,
the cycle continued unabated.
Stunted Growth: From Field to Factory
Farmers in Madhya Pradesh made their living in much the same style as their predecessors 50 years
earlier. The process of getting crops to market began with farmers harvesting the soybeans and
loading them onto tractors and bullock carts. Farms varied in size from under five acres for a small
farmer to greater than 12 acres for a large farmer. An average farmer, with about nine acres of
farmland, could expect an annual net income of approximately Rs. 20,000 ($443) from soybeans and
wheat together. After the harvest, farmers hauled their loads of produce 30-50 kilometers to the
closest mandi and then waited for the crop to be auctioned. The auction began when a government-
appointed bidder valued the produce and set the initial bid. From here, government-licensed buyers
called commission agents (CAs) bid upwards until the crop was sold.
ITC contracted with a specific CA in each mandi to bid on behalf of the company. Prices were
authorized by ITC’s office in Bhopal, MP. Here ITC employed a team of traders who followed the
global market. Although the CA knew what price ITC would pay, nothing prevented him from buying
from the farmer at a much lower price, selling to ITC at market price, and pocketing the difference.
Once a CA won an auction, the farmer brought his tractor to that CA’s shop in the mandi and waited
for the produce to be weighed on a manually operated balance scale that accommodated only small
increments of the lot. The actual weight of the crop was often manipulated at this point because of the
inaccuracy of the crude beam scales. For example, if the farmer brought 20 quintals of loose soybeans
to the mandi, he could expect to lose about 10 kilograms total during the transactions, or 0.5% of his
original lot. This translated to a loss of about 100 Rs. ($2.22) per lot. After the weighing process, the
product was bagged and the farmer was paid. According to the law, CAs were supposed to pay the
farmer immediately, but, in smaller mandis, farmers were often paid after an unofficial credit period.
The CA would simply tell the farmer to return after a few days for the money.
On any given day, at least 1,000 farmers could be found trying to file into the market to sell their
produce. Some had to wait for two or three days just to get into the crowded marketplace. Once
inside the mandi, the farmer was faced with further challenges of the chaos and pressure that
characterized the market yard. The Bhopal mandi, hosting an average of 1,700 farmers a day and the
sole destination for farmers in Dahod, was a dusty yard with a perimeter of booths belonging to the
various CAs. It teemed with adolescent boys who ran through the crowd, kicking up dust and eating
beans off the farmers’ carts. Laughing, joking men loitered and watched the auctioneers.
Farmers suffered as a result of the time it took to sell produce in the mandi, for they were dependent
on timely cash flow for subsistence. Thus, when harvest time arrived, they all descended upon the
mandi at once. The crop had to go to market immediately, and, more importantly, it had to be sold.
Farmers were stuck in the position of not being able to turn down a CA’s offer; in many cases it had
taken him all day to reach the mandi from his village, and to return with a full cart of unsold produce
would be a waste of time and money. Farmers rarely had access to adequate storage facilities in
which to hold the crop if it was not sold. If a farmer were able to store the soybeans, and sell before
or after harvest, without the time pressures associated with a perishable product, he would have more
leverage over their value. This was impossible, however, under the prevailing system, where the
farmer did not have other options.
Once a transaction had taken place, the CA brought the produce to an ITC processing facility. There,
ITC paid him for the cost of the soybeans. This was effectively a reimbursement, since the CA had
paid the farmer in the mandi from his own resources at the time of the sale.
The farmers’ isolation from one another and lack of telecommunications meant they had no way of
knowing ahead of time what price would be offered the day they arrived at the mandi other than word
of mouth. As a result, price discovery occurred only at the end of their growing and selling process.
Knowledge shared and captured in the traditional choupal could be extraordinarily useful to farmers,
but it had traditionally been limited to verbal communication. In the absence of telecommunications,
and even electricity in some places, news from the closest city could take days to reach an outlying
The uncertainty surrounding cash flow prevented the farmers from creating a sound financial base;
instead, they had become locked into subsistence living. Prices of Indian soybeans generally followed
the agriculture futures market on the Chicago Board of Trade and the Kuala Lumpur Commodity
Given the volatility of the spot market, and the fact that the value of agricultural commodities was
based on largely uncontrollable factors such as weather, disease, and pest infestation, farmers needed
to be aware of market activity. They needed to understand their product in its global context, so that
they could plan their activities with more confidence.
The e-Choupal was based on the knowledge sharing found in the traditional choupal model, but took
the concept one step further. ITC supplied a computer kit to each village with the following
1. A PC with a Windows/Intel platform, multimedia kit, and connectivity interface
2. Connection lines, either telephone (with bit rate between 28.8 and 36 Kbps) or, more commonly, VSAT
(in 75% of e‐Choupals; average 2003 usage 64 Kbps inbound, 1 Mbps outbound)
3. A power supply consisting of UPS and solar‐powered battery backup
4. A dot‐matrix printer
The total setup cost to ITC was Rs. 170,000 ($3,762) per choupal. Another Rs. 100,000 ($2,213) was
spent on people, travel, communication, software, and training. With the arrival of these components,
nightly choupals at the home of Kamal Chand Jain were no longer limited to stories and gossip of the
village. Farmers were instead accessing the World Wide Web through a site dedicated specifically to
them, ITC’s <www.soyachoupal.com>. This Web site was updated by the ITC Bhopal office. The data
uplink, however, took place in Bangalore, home of ITC Infotech India Ltd., ITC’s own information
technology subsidiary responsible for developing the software. The site contained much useful
information that was previously unavailable to farmers in Madhya Pradesh.
The site opened up by welcoming farmers into the “community” of the e-Choupal. There were eight
links to the areas of key information that comprised the e-Choupal: weather, best practices, crop
information, market information, FAQs, news, feedback, and information about ITC. The feature set
had been developed progressively with full involvement of the farmers using the system.
Weather page : India had no private weather service; the government was the only provider of
weather information. Before the e-Choupal, weather forecasts were rarely communicated to the
remote villages of the rural farmers. When they did reach the villages, they were too generalized and
did not accurately cover the 30.75 million hectares of Madhya Pradesh. Farmers needed to know
their regional weather in order to accurately expect the rains. ITC negotiated with the Indian
Meteorological Department, the national weather service, to get localized forecasts for district
pockets of 70-80 square kilometers within MP. The result was that, on the soyachoupal weather page,
a farmer could click on his home district to see his localized forecast. This knowledge made a lot of
difference in the timing of various farm operations such as the application of herbicides and
Furthermore, the difference between harvesting before or after a big rainfall drastically affected the
quality of the crop. Ill-timed rains reduced the value of a soybean crop irrespective of the amount of
money that was put into it at sowing time. “Farmer A,” for example, might spend 8,000 Rs.
($177)/hectare on inputs in the hopes of getting 15,000 Rs. ($332) in return. Similarly, “Farmer B”
could put in 5,000 Rs. ($110)/hectare and get about 10,000 Rs. ($221) in return. Poor rains,
however, would reduce the value of both A’s and B’s crops to a 6,000 Rs. ($133) return. Without
reasonable knowledge of weather trends, there was reduced incentive for a farmer to spend additional
money to produce a higher-quality crop from higher-quality seed. Without an accurate weather
forecast, farmers tended to err on the side of frugality. The ability to predict rain patterns would
therefore make a difference to the quality of soybeans sown by the farmers. The <soyachoupal.com>
site served to reduce farmers’ weather-based risks and took the guesswork out of determining the best
time to harvest.
Best practices page :Here a farmer could find out what other farmers of similar land area and crop
volume were actually doing and compare these “actual” practices to the “ideal” practices described
on the page. This was done in the simple local Hindi vernacular, not in obscure academic lingo. This
way, the farmer could immediately identify the gaps between what he was doing and what he should
have been doing. Such practices included how to prepare the soil before sowing and how to space the
seeds as they were sown. For example, 18-inch spacing was considered “best practice”; many
farmers, however, had been spacing their seed rows nine inches apart, which meant that their crops
did not receive proper ventilation or light. Such conditions led to an undernourished crop.
Crop information page :This section contained instructional material such as “How to take a good
soil sample” and information as to why soil testing was required. It also provided suggestions for
further actions to be taken based on soil-test results.
Market information: Four links on this page gave the farmer the options of exploring world demand,
world production, mandi trading volume, and mandi price lists. This way the farmer became involved
in the context of his livelihood. He was given knowledge about the mandi: the prices (lows and highs),
as well as the number of bags that had arrived at the mandi to date, and the estimated daily arrivals
(usually about 40,000 tons/day in the peak season). The farmer could thus assess the demand for his
produce at a particular mandi. This information used to be available only from research institutions
or corporations. Now it was being provided directly to the farmer. The site also contained a link to
the Chicago Board of Trade, where farmers could find a seven-to-10-day market outlook and track
global soybean price trends. One of ITC’s strengths was its ability to communicate with the global
News page: This contained excerpts of relevant news items, such as the government’s decisions on
subsidies or minimum support prices (MSPs), and innovations in other countries’ farming systems. If
a farmer did something that was particularly successful or innovative, that was posted to the news
section as well. This recognition provided incentive for the farmers, who would otherwise not have the
chance to be heard, to try new things.
Lastly, <www.soyachoupal.com> had a place for suggestions. One of the advantages of the system
was that the <soyachoupal.com> site could be continually tailored to the needs of the farmers. ITC
had relied on farmers’ input since the start of the project, and, in an effort to keep the site’s content
dynamic and relevant, it was important that the farmers could continue to be involved in its
improvement. The e-Choupal served different purposes over the changing seasons. At harvest time,
for example, farmers were more concerned about prices, at sowing time they were more concerned
about weather forecasts.
The e-Choupal initiative was based on the belief that the farmer needed an alternative to the mandi
system. By participating in the e-Choupal network, farmers were offered new channels through which
they could sell directly to ITC, thus eliminating the cost inflation and cheating that occurred through
the middlemen. ITC selected a lead farmer in the village to become the caretaker of this equipment
and a liaison between ITC and the farmers. The Sanchalak had to be someone whom people felt
comfortable visiting and someone who, in turn, welcomed such gatherings in his or her home.
In the evening, 15-20 people at a time showed up at the Sanchalak’s home for the usual choupal
gathering. The ITC computer system that had been put in place offered new impetus to the
discussions. In addition to the regular chatter, the Sanchalak would use his assigned user name and
password to access <www.soyachoupal.com> and share with his neighbors the interactive features of
the site. The Sanchalak had received some basic IT training from ITC, as well as instruction in
effective methods of communication. This qualified him to open the site to other farmers, who could
then navigate the site themselves. The log-in feature was designed with the idea of offering
customized content based on the log-in location; in the future, if the content were to evolve into a
more personalized form, individual farmers would log in themselves. Until then, however, the
Sanchalak, distinguished for his literacy and communication skills, served as the liaison between ITC
and the farmers.
Weather forecasts and mandi transactions were printed out and posted on a notice board in the
Sanchalak’s house. This way, the Sanchalak did not need to open the Web site with the arrival of
every visitor. Farmers could stop in and read the printed information at any time throughout the day.
If a farmer was unable to read, he only had to ask the Sanchalak’s advice. It was in the Sanchalak’s
best interest to advise the farmer correctly, for better-quality produce from each farmer would fetch a
higher price from ITC, and this meant a greater commission for the Sanchalak, as well as supporting
his reputation as an honest broker.
Farmers brought samples of their soybean crop to the Sanchalak’s home, where he was equipped by
ITC with moisture meters and other tools used to assess the quality of the beans. The company
provided “control samples” with which the Sanchalak could perform a quality comparison. Each
Sanchalak was trained (as part of orientation) in quality assessment of his particular crop, so he
would be qualified to judge the material based on damage or foreign matter. The soyachoupal Web
site provided the “best material price” for “best-quality” beans, so when farmers brought their crop
sample to the Sanchalak, he priced the material based on its degree of variance from that “best-
quality” example. The Sanchalak then determined whether or not each farmer’s sample matched
what he had learned to identify as the best material. Using the samples, he could physically show the
farmers: If you grow it like this, you will get a better price.
Reorganizing the Supply Chain
The physical setup of the e-Choupal kiosks facilitated a new kind of supply chain, of which technology
was at the crux. Trading outside the mandi, for example, was very difficult before the e-Choupal.
First, the mandi provided the only means for price discovery, and farmers reasonably assumed they
would fare best in open auction. Second, transactions outside the mandi were officially prohibited by
the Agricultural Produce Marketing Act. The government had confined agricultural transactions to
the mandis to protect the farmers from exploitation by unscrupulous buyers. Open auctions were
considered the best safeguard against this. At the conception of the e-Choupal, however, ITC was
able to convince the government of the potential benefits to the farmers and the economy, and the
government amended the act to legalize purchases of beans (and other agricultural commodities)
outside the mandi. The transparency of the e-Choupal - the fact that the Web site was accessible to
anyone, including the government, to cross-check ITC’s prices at any time -facilitated the
government’s acceptance of the initiative.
The Web technology brought price discovery to the village level. This changed the way farmers did
business. First, empowered with the knowledge of what price he would get at an ITC hub, as well as
the reports on prices at nearby mandis, the farmer was able to make an informed decision about
where to go to sell his beans. This knowledge was important, given the costs associated with
traveling to the mandi with the beans. By learning about prices in the village itself, the farmer could
determine how his revenue would compare to the cost of transportation. If he felt he could get a
better deal at the mandi through the open auction process, he could choose to go there. But given the
uncertainty of the mandi versus the set published prices offered by ITC’s hubs, in addition to the perk
of being reimbursed for transport cost, farmers began regularly defecting from the mandis and
Second, by following the real-time prices on the Web site, the farmers could decide when to sell.
Knowing the price in advance meant that the farmer could go to an ITC hub (assuming he was happy
with ITC’s price) on his own schedule, even if there were no other reasonable bids on the beans at the
A third feature distinguishing the eChoupal was its transparency. It is arguable that prices could be
communicated to farmers by other means, such as telephone or radio broadcast. These methods,
however, still relied upon spoken word. The ability to actually see prices being offered, in writing, on
the computer screen (in spite of the illiteracy of some of the farmers), was instrumental in establishing
the trustworthiness that made the e-Choupal effective. The Web model was also more scalable, since
one kiosk could be used by hundreds of farmers.
Without price discovery via the Web portal in the villages, selling to ITC hubs directly might be little
different than going to the mandi. In fact, the mandi might be more attractive because the farmers
would have the opportunity to sell in an open auction. But with the e-Choupal, the farmer was able to
make his own informed choice. ITC worked to make its hubs attractive destinations for farmers. In
addition to competitive pricing, the hubs contained multiple amenities that were not available to
farmers in the mandis.
The ITC Hubs
ITC had five processing units in Madhya Pradesh and 39 warehouses, making a total of 44 points to
which a farmer could bring his soybeans. This compared to 51 large soybean-based mandis in the
state. The farmers traveled an average of 20 kilometers to reach a hub, the range being five to 30
kilometers. ITC had 1,695 e-Choupals in MP, covering 8,400 villages and reaching 80% of soybean-
and wheat-growing areas in the state. The physical architecture of the e-Choupal model called for a
Web kiosk within walking distance (less than five kilometers) and a hub within driving distance (less
than 30 kilometers) of every targeted farmer. To make sure this was fulfilled, ITC added three
processing hubs and 36 warehouses in MP after the e-Choupal project got under way. The distance
between farms and hubs was about the same as what a farmer would travel to get to a mandi.
Once the farmer arrived at one of ITC’s hubs, his beans were weighed on a computerized
weighbridge, and the weight was multiplied by ITC’s published price. The farmer then received cash
on delivery. ITC maintained enough cash in a secure kiosk at the processing plant so that the farmer
was fairly and immediately paid. In addition, the farmer was reimbursed for the cost incurred
transporting his material to the factory. Depending on how far the farmer had traveled, ITC repaid
him based on fixed freight-cost parameters, and that sum was added to the payment for the produce.
Simple amenities at the ITC processing plant made the experience considerably more pleasant than at
the mandi alternative. After the soybeans had been weighed, a tented seating area provided the
farmer with a shaded spot for him to sit and await payment. Restroom facilities were available. None
of these existed at the traditional mandi. In addition, there were 15-liter jugs of soybean oil available
for purchase. ITC made a point of saying, “This is your oil; this was made from your beans.” When
the farmer bought soybean oil directly from ITC, he skipped four or five people in that supply chain,
keeping his own purchasing costs to a minimum. The oil was pure and unadulterated because it came
directly from the ITC factory.
As an added convenience, the processing facility included a soil-testing lab on the premises, where
scientists offered recommendations for fertilizers or additives based on the chemical composition of
the farmer’s sample. This took three days, while the alternative - going to a government lab - would
take longer. Scientists employed by ITC made recommendations on the nutrient dosages that the soil
needed based on its properties. They did not recommend any specific brand of fertilizer; they just
gave the farmer the soil properties, and then the farmer could choose his own brand of fertilizer
based on his soil composition. Freedom of choice was an important principle of the e-Choupal
For his involvement in the ITC procurement process, ITC paid the Sanchalak a 0.5 % commission on
the sale of soybeans. He was, after all, effectively doing ITC’s buying - buying that would otherwise
have taken place at the mandi. The e-Choupal system effectively turned the Sanchalak into an
entrepreneur, for he also had the opportunity to earn a 2%-3% commission on orders placed for input
items, such as herbicides, sowing seeds, and fertilizers, provided through ITC. Instant-glow gas
lanterns and edible oil were also popular sells. With the help of commission from edible soybean oil
sales, Dahod Sanchalak Jain earned about Rs. 35,000 ($775) over the three to four months of the
2002 soybean season.
ITC benefited because of the increase in turnover resulting from Sanchalaks organizing and
mobilizing farmers to sell to the company. The farmers were happy to have a better-defined channel
through which to sell. But what of the middlemen, the commission agents of mandi life ? All of ITC’s
CAs were kept, albeit with a new title: Samyojak. In this role, former CAs were given additional
money-making opportunities within the e-Choupal system. ITC mandated that its CAs become
Samyojaks if an e-Choupal was being set up in their geographic area. In most cases the
transformation was achieved by convincing CAs of the potential revenue to be gained through the
transactions in the e-Choupal. The Samyojak role comprised three major areas of responsibility: 1)
setting up the e-Choupals; 2) facilitating ITC’s purchasing transactions; and 3) helping with ITC’s
In the establishment of new e-Choupals, the Samyojak assisted ITC teams in village surveys to lay the
groundwork. This meant assisting in the selection of the Sanchalak, acting as a liaison between
villagers and ITC, and helping villagers understand the potential for the new system to be more
efficient and profitable for all parties.
Samyojaks also managed warehousing hubs attached to the processing facilities that stored bought
soybeans. They assisted in the logistics of the cash disbursements to farmers arriving at the
processing facility. They also helped facilitate transportation links for farmers who could not reach
the ITC processing facility themselves.
ITC’s selling transactions comprised the “one-stop-shop” feature of the e-Choupal. Farmers could
buy herbicides, sowing seeds, gas lanterns, fertilizers, and soybean oil among other sundries directly
from the company. While the Sanchalak had the responsibility of aggregating the orders in his village,
the Samyojak would assist in actually moving the goods from ITC’s manufacturing units to the e-
Choupals and/or warehousing hubs.
Three systems enabled ITC to sell and deliver goods to farmers through the e-Choupal. The first was
at the village level, where the Sanchalak aggregated demand for products through orders placed by
his fellow farmers. This was done during the traditional choupal time. The Sanchalak then e-mailed
the order to ITC, and the items were either a) picked up by the Sanchalak at the ITC warehousing
hub, or b) delivered by the Samyojak to the villages. In either case the Sanchalak collected cash
payments from his neighbors and remitted them to ITC. Seeds and fertilizers were sold in this way.