Bangalore: In less than four months after becoming Britannia Industries Ltd’s de facto head, Varun Berry has started making key operational changes and strategic tweaks as the biscuit maker looks to increase its market share and improve margins, which have slumped over the past few years because of a sustained rise in material costs.
Britannia surprised investors and analysts in May by naming Berry—who joined as chief operating officer (COO) only in January—as the head of the company’s India business, which accounts for over 90% of its sales. It said then that Vinita Bali, its managing director for over eight years, would look after the fledgling global business. However, Berry still holds the title of COO.
The task ahead for Berry is enormous as increasing market share and boosting margins are not goals that usually complement each other.
Increasing market share will be tough for Britannia at a time when volume growth for biscuit makers has dropped to 5-7%—the lowest in over a decade—from over 10%. Britannia is also facing increased competition from Parle and Sunfeast maker ITC Ltd as well as several hundred regional firms.
For achieving his other goal, Berry can’t afford to raise prices because of the risk of losing customers to rivals.
Bigger rival Parle has already increased its promotional expenditure this year and has held prices despite an increase in oil costs.
On an immediate basis, Berry has made increasing the company’s 30-33% biscuit market share his top objective and has identified fixing kinks in Britannia’s sales and distribution as his top priority, according to two people aware of the plans. Both declined to be named.
Britannia did not respond to an emailed questionnaire.
Britannia, which also sells curd, flavoured milk, cheese, bread, cake and rusk, has begun to separate its distribution channels for the biscuit and dairy businesses.
The company already has different sales teams for the two businesses in some cities and is likely to implement the change in other parts of the country in the near future.
“Britannia will not sacrifice market share. It’s not like profit is not important but the management’s view is that if you have market share, profits will follow. In this volatile economic and cost environment, you need to have shorter lead times and you need to be competitive in the market. Price increases will slow growth, so the company will hold prices for now,” said one of the two people, who has direct knowledge of the developments.
Berry says that separating the company’s distribution channels will bring sharper focus among his sales executives, lead to better relationships with retailers and distributors, and possibly cut lead times in getting products to the market, this person said.
“The company is not looking at dramatic changes in strategy but there are tweaks required and, operationally, there’s a lot of room to improve. The top focus currently is distribution. Britannia’s efficiency and execution in distribution has slipped a bit and it needs to get that back,” this person said.
Britannia is also looking to cut the number of its biscuit brands and some pack sizes as well. Over the past few years, the company launched a few labels such as Nutri Choice and numerous extensions of its existing brands, but failed to introduce a product that swept the market.
Some of the other changes Berry is implementing include developing a new strategy for the company’s Rs.1,500 crore dairy business, installing a scientific demand forecasting system and streamlining the management structure by giving more functions to senior management executives, according to the two people cited above.
“In dairy, the company doesn’t have a clear strategy yet and it’s a category where strategy is crucial. Soon there’ll be a lot of competition with multinationals sure to come in. Before that, the company needs a clear blueprint on what the dairy portfolio and strategy is going to look like,” the first person said.
Berry discussed some of these changes in Mumbai in late August at his first meeting with financial analysts.
The management reshuffle in May, the firm’s second in five months, was driven by promoter Nusli Wadia who was unhappy with the slump in Britannia’s margins among other things.
The firm’s Ebitda (earnings before interest, taxes, depreciation and amortization) margins fell to less than 6% last year from 9% five years ago mostly due to a sustained rise in material costs.
Berry has regular phone conversations with Wadia to give him business updates and reviews and meets with him once every 45 days or so, according to the first person cited above.
“The promoters are not intrusive and it’s clear they don’t want to run the company, but they do want regular updates,” this person said.
Berry is under a lot of pressure to cut costs, said the second person familiar with the developments. “Whether he can deliver will be one of the key factors in deciding if he gets the top job or not. Remember, while he has operational control, his title is still that of COO,” this person said.
To cut costs, Britannia is increasing the use of biomass, a cheaper alternative than traditional fuels, and has identified other measures to save energy such as developing improved baking ovens that lead to reduced emission of heat, the first person cited above said. The use of biomass at Britannia factories was initiated by Bali.
Britannia has hired a baking technology expert, who is reporting directly to Berry, to make its manufacturing more efficient, another person with direct knowledge of the matter said.
“A lot of FMCG (fast-moving consumer goods) companies including HUL (Hindustan Unilever Ltd) are investing in technology to drive manufacturing efficiencies. As companies increase in size, technology is likely to be key for them to gain the highest possible economies of scale,” said Harminder Sahni, managing director at consultancy Wazir Advisors.
Berry took over the India operations from Bali who led the company for over eight years starting from January 2005.
Bali, a former Coca-Cola Co. executive, stabilized the ship at Britannia amid the turmoil surrounding Sunil Alagh’s removal as the company’s CEO. She accelerated the company’s sales growth, strengthened Britannia’s brand image, launched fast-growing health food products, built a strong bench of mid- and senior-level leaders and put in place some cost-saving initiatives that Berry is now likely to benefit from.
One criticism of Bali, a widely respected corporate leader who sits on the boards of companies including Titan Co. Ltd, was that Britannia was unable to launch a market sweeping product such as Good Day or Marie during her tenure. Both are Britannia brands.
The two people familiar with the plans confirmed that product innovation is not among Berry’s immediate priorities, but is a longer-term goal.
“There won’t be anything coming up in the next six months, only after that. The aim is not to go for an incremental kind of product, the aim is to come up with a disruptive product that will change the market. Britannia wants to have 8-10 products in the pipeline that aren’t there in the market and even if one of them works, the goal would’ve been achieved,” the first person said.
Britannia has announced two rounds of management restructuring this year, and seven senior and mid-level management executives have left the company.
Chief information officer Syed Hussain and Anand Ramchandran—business operations director—are the latest executives to quit the company, following former COO Neeraj Chandra and Sreekanth Arimanithaya, head of human resources, said two people with knowledge of the matter, including the second person cited earlier.
Mint couldn’t reach all the executives for comment.
Britannia is looking to hire a new human resources head and has given the role to an internal candidate, Ritesh Rana, a mid-level human resources executive, till it finalizes the appointment, the people said.
“Attrition at the senior level usually is obviously not good for any company, but when there’s a new leader, the effects of attrition depend on the amount of change that the (executive) wants to drive. For instance, if he is trying to bring a dramatic change in operations and strategy, then attrition may not be a bad thing because you require different skill sets,” said Rishikesha Krishnan, a professor at the Indian Institute of Management, Bangalore.
Britannia shares have risen nearly 31% since late May when the company reported better-than-expected results for the March quarter and reshuffled its management for the second time.
With the cost of inputs such as wheat finally stabilizing, investors and analysts are betting Britannia will continue to deliver strong results.
“Investors are expecting Britannia’s premiumization (higher sales of pricier biscuits) to accelerate and the cost-efficiency measures to show results. Crucially, Berry will be helped a lot as material costs are likely to be stable this year,” said Bhaveshkumar Jain, an analyst at Sushil Financial Services Pvt. Ltd.