Organic growth: Ashwani Kumar Arora, MD and CEO, LT Foods
In the 1980s, LT Foods was one of India’s biggest commodity traders in rice, grains, pulses and beans. Today, bulk rice constitutes 33 percent of its turnover at 1.3 lakh tonnes, while it sells 2.67 lakh tonnes of branded basmati rice annually, and is the world’s second largest rice miller, according to global marketing research firm AC Nielsen.
But if you peel back the layers of the LT Foods onion, you will discover bigger ambitions. “We want to be recognised as a global food company, not a commodity trader,” says its MD and CEO Ashwani Kumar Arora (52), whose father started the business as a grains trader in the 1950s.
Arora’s father, Raghunath, set up the firm’s first rice mill in 1978 in Punjab’s Bhikhiwind village, close to India’s border with Pakistan. Since then, the BSE-listed company has established a footprint in 65 countries through its brands Daawat, Royal, and Hadeel.
In November 2016, LT Foods set up a joint venture with Japan’s Kameda Seika Co to make healthy rice snacks for South Asia. Last year, it also bought the Gold Seal Indus Valley and Rozana rice brands from Hindustan Unilever to boost its presence in the Middle East. In the US, it sells branded rice, organic cereals, sauces and Spanish grape seed oil. A few years ago, it introduced a pricey line of organic healthy foods, ecoLife, which sells superfoods like quinoa and roasted freekeh. Sales of healthy food products will top $1 trillion in 2017, according to market research firm Euromonitor.
Arora speaks to Forbes India about the company’s playbook and putting consumers’ health on priority. Edited excerpts:
Q. Is the firm’s transformation from a commodity trader to a food company driving growth? My father started the business as a trading company in the 1950s, but to have long-term sustainability it was necessary to create a food business with strong brands. While it is important to offer a quality product, branding is often at the heart of the companies that thrive. Over a 30-year journey, we have vigorously transformed into a global food company by establishing strong brands like Daawat, Royal, Hadeel and ecoLife.
Today, the trend is health plus convenience. At LT Foods, we are developing our product range based on that theme. Millennials are pushing for healthier, more eco-friendly foods.
Euromonitor says sales of healthy food products will top $1 trillion in 2017
Q. LT Foods has an estimated revenue of $500 million. Where do you see yourself in the next five years? LT Foods expects revenue to double to $1 billion by 2022. We have a clear roadmap. We are leveraging our brands to build an export-driven global food company. Improvements in procurement, processing, sales and distribution should lift operating profit as a percentage of revenue to 15 percent in the coming years from 12 percent.
Life is like a giant chessboard where you have to be completely aware in the moment, but also thinking of a few moves ahead. At LT Foods, we are preparing for the future by creating products that are aligned to changing consumer preferences. We are concentrating on our organic foods portfolio which will be a growth driver, even as our core rice business provides strong cash flows.
Q. How much rice do you sell in India and what is your market share? LT Foods annually sells about 2 lakh tonnes of branded basmati rice in India, and has a 20 percent market share. Branded packaged rice accounts for about two-thirds of our sales, while trading and value-added products, such as brown rice, make up the rest. Q. How important is North America in your growth strategy? We are a $500-million company and 30 percent of our revenue comes from America, so it’s our biggest export market, and will be for the foreseeable future. LT has more than 45 percent of the basmati rice market in the US with brands like Daawat and Royal. In July, we purchased the 817 Elephant brand to boost sales in the US and Canada. We’ve also partnered with Walmart and US specialty grocer Trader Joe’s.
Q. You launched a $15-million rice processing plant in Rotterdam, the Netherlands, to cater to Europe. What are your investment plans for America? I don’t want to break down numbers, but we are making sizeable investments. In October, we launched our ready-to-serve rice plant in Houston, Texas. We are creating jobs through our main office in California, regional offices in Houston and New Jersey, and warehouses across the country. We also have a big marketing budget for the US.
Q. How do you remain responsive to shifting consumer needs? Historically, the traditional tactics of advertising, promotion and price moved markets. It is not so easy now. The energy in a marketing-driven company was ‘yelling’ a message. In contrast, a new-age market-driven company ‘listens’ to its customers.
As a responsive brand, we keep track of relevant platforms that will help us reach and listen to our customers.
For example, we listened to our customers’ frustrations about how brown rice took ages to cook. In response, we developed our 12-minute ‘quick cook brown rice’ and it became an instant success. We have 80 percent market share of the branded brown rice market in India. We also launched Rozana Gold Plus, which has a mix of 80 percent basmati and 20 percent quick cook brown rice. Also, we are selling direct-to-consumers via digital platforms, making scale of distribution less of a differentiator. Q. How do you compete with KRBL Ltd and Kohinoor Foods? We aim to increase our annual rice processing volumes to 5 lakh tonnes in two years, from 4 lakh tonnes, by outsourcing to mills owned by others. We don’t want to invest capital and there is a lot of idle capacity available.
We respect our competition and keep tweaking our portfolio to keep up with changing market dynamics. I believe growing our portfolio beyond rice towards health foods puts us in a strong position competitively.
Q. The 2014 sweepstakes, where you gave away a Mercedes-Benz car in the US to the winner of ‘25 Ways to Win With Basmati Rice’, created a buzz. Are sweepstakes part of your marketing strategy? These initiatives are an integral part of our marketing strategy. When it comes to promotions, contests, sweepstakes and so on, we are all the same—we all want to win! These initiatives connect customers to our products.