ITC plans to offer distribution networks to startups for a fee

KOLKATA: ITC plans to offer its distribution network, covering all parts of the country through some 4.3 million shops, to startups and smaller FMCG companies that want to go national for a fee to create a new revenue stream, two senior industry officials aware of the development said. The tobacco-FMCG-hospitality major is even open to the idea of acquiring stake in some of these smaller companies, they said.

“The way ITC has a packaging business where it does packaging for rival FMCG brands apart from its own, it also wants to monetise its distribution network,” one of them said.

ITC, which is looking to shore up its non-tobacco revenues at a time when cigarette sales are under pressure due to recurrent tax increases, has now created a separate division for distribution. Earlier, distribution was part of the firm’s cigarette division called India Tobacco Division ( ITD).

B Sumant, who was the divisional chief executive of ITD, has been redesignated as the chief executive for tobacco and distribution, a new role which ITC has created, the sources said. His prime responsibility will be to lead the distribution business and he will report to ITC executive director (FMCG) PV Dhobale and president (FMCG) Sanjiv Puri.

Hemant Malik, who was earlier the chief operating officer of ITD, has been promoted to the post of its CEO. He will report to Sumant. ITC declined to comment.
On its website, the company has confirmed the new role of Malik, although there was no mention about Sumant’s new role or creation of the new distribution business as of press time Sunday.

One of the persons quoted earlier said that besides monetising its distribution network, the restructuring will also help ITC increase focus on its cigarette business that has been under pressure for past few quarters.

While nearly 60% of ITC’s net revenue is generated from the non-cigarette business, cigarettes still contribute significantly to its profits despite sales volume sliding by up to 15% in the past two quarters due to price increases due to higher taxation.

Another person said the move is in line with ITC’s recent focus on promoting relatively younger talent for bigger roles with the approaching retirement of chairman YC Deveshwar by 2017.

Sumant, 52, and Malik, 49, are both lifers at ITC, joining the firm soon after completing engineering and MBA, respectively. Earlier this year, ITC had promoted a battery of executives, including Sanjiv Puri, 52, as president (FMCG business) and VL Rajesh, 47, as divisional chief executive for packaged food.