Britannia Promises A Feast Of New Cakes To Biscuits This Year
Britannia Industries Ltd. is looking to strengthen its bakery segment and improve its reach in northern and central India as it plans to become a total foods company.
The country’s second-largest biscuits maker by volume, which completed its 100 years, plans to launch 50 new products this year—mostly in the premium range under brands like Good Day and Nutri Choice, besides cakes and products like croissant under Greek food brand Chipita.
“Seventy-five percent of our launches will be in premium categories and a lot of those are going to be new to the market,” Managing Director Varun Berry told BloombergQuint in an interview in Kolkata. “I think some products have the makings of a blockbuster.”
The biscuits maker has 5 million outlets and looks to strengthen its presence in the Hindi-speaking belt—the central and northern parts of the country. Britannia has been focusing on increasing its distribution in this region for the last few of quarters. Berry expects that 13-14 percent of the company’s market share will eventually come from this region.
While Britannia continues to strengthen its premium play, it also aims to beat India’s largest biscuit maker, Parle, in value terms. The company, however, admitted that it can’t compete with Parle by volume.
“I don’t think we will ever be able to get to Parle size in terms of tonnages,” Berry said. “So, they will still be the largest brand by volume, while we are at a striking distance as far as revenue is concerned.”
Berry expects Britannia’s volume growth to remain in double-digits driven by strong demand. But political stability will have an impact on consumer sentiment.
“Let’s hope that the political stability continues,” Berry said. “The economic sentiment is certainly looking better than before.”
Watch the full conversation here:
Edited transcripts of the interview:
You have started FY19 on a big bang. You had great set of numbers, double digit volume growth. Do you expect this kind of performance to continue for the next three quarters? What could will be the reasons for this kind of performance for the next three quarters as well if that’s what you are expecting?
Varun Berry: I do think the consumer sentiment is fairly positive, we do see that across the FMCG industry. Most companies have declared results which are fairly good and while there is a little bit of a base factor, because last year same quarter was the GST quarter, but I do think that there is something fundamentally different from what there was a few years ago which does makes me feel, and now you can call it gut feel that, this could be a year of double digit volume growth for us if we keep doing the right things and it is a big year for us.
It’s the 100th year for us and we’ve lined up a lot of initiatives to make sure that we do a lot of exciting stuff in this year. So the entire portfolio of Britannia products is going to change because we are changing the logo of Britannia and hence some of the packaging designs are changing and the formulations are changing. We are relaunching some brands, we are launching a lot of new products, so we have about 50 innovation products to come into the market which is going to be across our portfolio. So we are doing a lot and we are hoping that that, plus the sentiment in the market, will keep the trends the way they have been.
That really takes care of revenue and volume growth. You talked about affordability of your products coming in for tier 2 and tier 3 markets with price points at Rs 5, 10, 15 which are volume drivers. Will you be able to sustain margins at these levels going forward?
Varun Berry: It doesn’t necessarily mean that a ten-rupee product has to be less profitable. A ten-rupee product of a small brand which is doing not so good products could have say 100 gms of biscuits in it, a premium brand could say, be 20 percent less. So, it could be profitable. Our strategy is to democratize our products, have them at the right price points albeit a little short on the number of biscuits if required because the product ingredients are a lot richer.
But, I don’t think that’s the point. The point really is, there’s an interplay between the inflation in the market and the prices. So this year we have hardly taken any pricing, but as we go forward there is going to be a little bit of pricing that we will need to take because wheat prices have gone up, sugar prices are up a little bit and hence, the previous quarter is fine, even in this quarter we are fine. The fact is that at some stage its going to hit us. While you can have a certain coverage of raw material, its not upto eternity. So we have to start to plan and make sure that we start to look at price increases wherever required. So the balance really is how much between inflation and how much pricing you are taking which results in the delta between volume growth and revenue growth. But, with all the innovations that we are going to launch in the next two three months, we feel we will be able to maintain our revenues as well as our volume growths.
You have outlined 50 new launches for this year and next 2-3 months which are most crucial launches coming from your end. Will that be able to take care of margin expansion? Will we see further momentum there going ahead?
Varun Berry: 75 percent of our new launches will be in the premium categories and a lot of those are going to be new to the market. So, there are going to be very exciting products coming in biscuits, cake as well as the new category which is chipita. So, all of these products are very interesting products. I think, some products have the makings of a blockbuster. We are looking forward to that and we hope that the kind of fillip that we are looking we get with these products as we go forward in the year.
You talked about taking some price hikes. We have seen some inflation in raw material like wheat and sugar. What is the extent of price hike that we will expect in next quarter from your end?
Varun Berry: It probably will be nothing much in this quarter, but in the fourth quarter of this financial year, we will start to take four to five percent price hikes.
On the distribution front, you were very aggressive in Hindi belt and rural areas. You have around 5 million outlets. Where do we see you in next five years in the distribution reach? Is Hindi belt will be the focus area for expansion going ahead as well?
Varun Berry: In the Hindi belt our average share will be 13-14 percent and our total share is one-third of the market, so there is a big gap. so obviously, with the right distribution, with the right measures, with the right products, we should be able to move that up. And, actually as we’ve seen in the previous quarter, Hindi belt numbers are looking very robust and so are our rural numbers.
What kind of revenues are you expecting?
Varun Berry: We don’t give any forecast but our endeavor will be to keep growing and keep growing aggressively.
You have opened one plant in Maharashtra. You are also talking about opening up in Nepal. In the markets that you have present in, you are planning to open a plant in each of these. What is going to be your total investment over the next few years in opening each of these plants?
Varun Berry: We are not going to break the bank as far as investments is concern. In Nepal, for the new plant, the total investment is about Rs 40 crores. Similarly, in the other countries that we go it depends on if you are going on your own or going with joint venture partner. It could be anywhere from Rs 25-40 crores on manufacturing facility. But after that we will have to invest in market too to establish our products. So, that is the kind of investment per country that we are looking at.
You talked about being agile as a company and being innovating heavily and also becoming a total foods company. Can you outline what are you working on? Which are the new areas, segments or beverages you are looking at?
Varun Berry: We are working in concentric circles. We will first fulfill our core. So, if there are any gaps in categories that we operate in, we will fulfill it and then we make wider to bakery. In bakery, there are certainly gaps. We can make into blockbuster without distribution in our marketing strength. So, that’s what we are doing. We are looking at bars, cream wafers, whole lot of other categories within bakery and then we move outwards towards macro snacking and we are looking at some categories. I can’t divulge which category, but you will soon know. We are looking at dairy category seriously but its got a longer lead time. It is not that dairy will happen in five to six months, it will take one and half years for dairy to hit the ground from manufacturing facility.
For drinks, we already have ‘Winkin Cow’ which is dairy drink project which is doing reasonably well within the constraints from what capacity we have. But we will scale it up and we will look at what are the more innovative products, packaging formats that we will get into as we move forward. We are not leaving any stone unturned as far as categories are concerned but very clearly establishing right to succeed before we move.
Are you also entering into fruit beverages because that is a category which has gained significant amount of momentum?
Varun Berry: Not at this stage. But nobody can say that never.
Till when we will see this kind of consumer momentum sustaining in the market?
Varun Berry: It all depends on how the political system operates. There seems to be some optimism coming through. It is also the election year so hopefully policy will be moving in the right direction. In next year, if the government comes back and I think it will come back stronger. Let’s hope that the political stability continues and the consumer sentiments will continue because economic sentiments is looking better than before.
You have talked about Good Day being a Rs 3,500-4,000 crore brand. In the next three years you expect it to be the biggest biscuit brand in the country. Where do you see this brand in next three years?
Varun Berry: Good Day has been growing at a very rapid pace. If we are being able to maintain that pace of growth, you can calculate where we will be. We are growing at mid-20s. At that rate, it its going to give us Rs 700-800 crores every year. I do not want to say that other brands will not grow. Parle G which is the largest brand and I have great respect for the company and for the brand, if they grow at same rate, its going to be a catch up that we might not be able to do. But if we are able to grow faster than them then we have opportunity to become the largest brand.
So, can we see more affordable pricing happening in Good Day too?
Varun Berry: We already have affordable pricing. We have got a Rs 5 Good Day and we have got huge offering of Good Day products as well. There will be some innovation. The brand’s on a very strong footing. We hope that growth continues and we do become the number one brand.
Parle is not the only competition, there are other competitors as well in this market who are also pretty aggressive in terms of capturing market share. So how are you dealing with competition in biscuit space?
Varun Berry: They are nowhere close to where we are or where Parle is in terms of size. From that standpoint, we are reasonably good. While we have reasonable chance to become as big as Parle G in terms of revenues, but I don’t think we will ever be able to get to Parle G size in terms of tonnages because they have got huge tonnages. So, they will still be largest brand by volume while we are at striking distance as far as revenue is concerned.