Britannia Industries Ltd. isn’t worried about the competition it faces from its rivals ITC Ltd. and Parle Products Pvt. Ltd. in India’s premium biscuits market.
The company is the nation’s second-largest biscuit maker and the leader in the premium category. Its peers are also building their premium portfolios and supporting them with aggressive advertisement campaigns, Britannia’s Managing Director Varun Berry told BloombergQuint.
“We are glad that everyone is making the right moves because it will make sure that the segment grows much faster than the overall biscuit market,” he said. “Us being the market leader in the segment, the advantage will be with us if we do the right things.”
Britannia plans initiatives to generate demand to help it maintain a double-digit volume growth seen in the last two quarters. This partly depends on a stable inflation rate in its commodity basket. While the prices of milk, sugar and flour have reduced, oil prices increased by a large margin. So far, there has been a small inflation in the overall commodity basket which is “manageable”, Berry said.
Another factor in securing advantage is “democratising” the premium products so that they’re available to those who are not willing to spend much on such products. Britannia Industries had earlier told BloombergQuint that it will make its premium brands affordable by offering smaller packs to make deeper inroads into the hinterland. “It’s a very important part of our strategy,” Berry said.
Keeping up with new technology that helps bring in products that are first to the Indian market is also crucial, he said.
Parle, the country’s largest biscuit maker, has expanded its offerings under its Platina brand. The segment, which includes flavoured ‘Hide & Seek’ biscuits and ‘Milano’ cookies, contributes 15 percent to its revenue. This is expected to grow to 25 percent as of this March, Mayank Shah, category head of Parle Products, told Business Line in February.
ITC’s bakery segment has also introduced a line of ‘Farmlite’ digestive biscuits and cookies under the ‘Dark Fantasy’ brand, in direct competition with Britannia’s ‘Nutri Choice’ digestive biscuits and ‘Good Day’ chocolate chunk cookies.
Hindi-speaking states such as Uttar Pradesh, Bihar and Madhya Pradesh are a weak spot and a growing opportunity for Britannia, Berry said.
“We are at best a distant second or even a third player in some of these states,” he said, adding increasing geographical distribution is one its key areas of focus for the financial year.
The company is looking to come up with more premium and value-added products instead of basic milk products, he said. Cheese, for instance, is a high value-added product for the company.
While other dairy product makers may be benefitted from lower milk prices, “we are not looking at getting into basic products because the value added is not enough to give us enough of a premium or profit”, he said.
We all know that Britannia has created a very strong niche in premium products. But what is Britannia doing to deepen the moat and tackle competition in areas that it was always strong in?
You’re talking about the premium products I’m guessing. We are certainly the strongest but we are not the only one. I do think ITC has a fairly strong premium portfolio. Even Parle has been trying to build a strong premium portfolio and they have been advertising pretty heavily. But remember one thing, when competition grows in a certain segment, the growth in that segment becomes much higher than it has ever been.
I’m glad that everyone is making the right moves in the premium segment because this will make sure that the segment grows much faster than the overall biscuit market. And obviously, being the market leaders in the segment, the advantage will be to us if we do all the right things, if we create the right portfolio and if we continue to bring the choices for the consumers and that’s exactly what we plan to do.
And that will involve adapting your product strategy to the market?
Definitely, and also bringing in the right technologies to develop products which are first to market, which are very different from what consumers have tasted in the market. Also, democratising the product to make sure it doesn’t just become a product for a person who can afford it, but there is a certain SKU (stock keeping unit) even for people who are not willing to spend a lot of money on indulgent products.
We have seen a softening in the prices of sugar milk and wheat. Your operating margins have increased and so have the volumes. Entering FY19, what’s the focus going to be like? Is it going to be on volume growth? And if the prices continue to soften, will you re-look at product pricing?
Just to clarify, while there has been a softening in commodity prices such as sugar, flour and milk is concerned, there has been a fairly high inflation as far as oil is concerned. The oil import duties have gone up from 7.5 percent to 48 percent. so overall there has been small inflation in the basket which is manageable in the overall commodity basket.
Hopefully, as we go forward, things will remain as they are, inflation will remain within a certain band. And that will give us the ability to maintain prices and that we are able to work on all the demand-generative initiatives that are up our sleeve this year. That would also make sure that the volume growths and the revenue growth stay at the level at which Indian should be reflecting. I have always dreamed about double digit volume growth. Now we have had two quarters of volume growth and we are hoping we are able to continue with it.
In which geographies do you still think there needs work to be done in terms of Britannia’s products?
The Hindi belt continues to be our weakest area. We have seen a lot of traction in our market share and our distribution in those areas but we are still distant second, or a number three player. So that will continue to be our focus. We will make sure that we continue to focus on distribution, demand generation and market share growth in the Hindi belt. But that is not the only area of weakness., There are other states as well which have segments where we have got some work to do. So, we continue to work through all of these to make sure we continue to see a distribution game. Last year has been one year where our distribution numbers have been growing month on month and that gives me a lot of confidence in what our team can perform and what we can take this company to.
How are you tackling competition when other dairy players businesses are stepping into value added products?
As far as dairy is concerned, the milk prices have been soft and that is giving tailwinds to dairy players. However, our strategy is not to be in every dairy category possible. We would like to be only in the value-added categories. So out of the portfolio that we have today, the most value-added part of the portfolio is cheese. So, as we go forward we would like to make sure that we put a back-end for cheese. We start to produce products which are value added, which have the right traction with the consumers and that really is what we are looking at. We are not looking to getting into products which are [made of] milk because the amount of value addition in those products is not enough to give us premium and a profit in those categories.