ITC's Diversification Strategy

The proposed Tobacco Products (Prohibition of Advertisement and Regulation) Bill 2001 prohibits smoking in public places and the sale of tobacco products to people under the age of 18. According to the Bill, no tobacco related business would be allowed to advertise in any type of media. Even surrogate advertising, like sponsoring sports and cultural events, by such companies was to be banned. International brands, however continued to advertise on satellite TV channels. Naturally, this put the domestic players at a disadvantage. To make matters worse, tobacco companies had already been badly affected by rising excise duties and competition from smuggled products. In fact, the number of cigarettes sold declined between 1997 and 2002, and major cigarette companies saw a decline in sales volumes.

Since then the company has diversified into a variety of other businesses- sportswear, greeting cards, ready to serve packaged foods, confectionery and branded staples- to reduce its dependence on its cigarette business. ITC diversified into retailing and merchandising of sports goods and premium apparel under its cigarette brand, 'Wills' and ran holiday packages under another cigarette brand, 'Gold Flake'. These businesses helped keep alive the existing brands. However, so far ITC hasn't been able to earn significant profits through any of its non-tobacco businesses. ITC's core business, cigarettes, contributes almost 85 per cent to its revenues, while almost all the other diversified businesses put together contribute only 15 percent. Analysts feel that ITC's ability to grab a sizable share of the markets it has entered and progressively make profits is doubtful, because it has diversified into areas where there is intense competition.