Dairy business to lead growth at Britannia

Dairy business to lead growth at Britannia
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First Published: Thu, May 07 2009. 12 24 AM IST

Power brands: Britannia Industries managing director Vinita Bali says the firm holds  one-third of the Rs8,500 crore organized biscuit market. Hemant Mishra / Mint
Power brands: Britannia Industries managing director Vinita Bali says the firm holds one-third of the Rs8,500 crore organized biscuit market. Hemant Mishra / Mint
Updated: Thu, May 07 2009. 11 30 AM IST
Bangalore: The past few weeks have been action-filled ones for bakery and dairy company Britannia Industries Ltd. First the Wadias brought out French foods company Groupe Danone’s stake in the company. Britannia then also ended its joint venture with New Zealand-based Fonterra Cooperative Group for the dairy business.
Power brands: Britannia Industries managing director Vinita Bali says the firm holds one-third of the Rs8,500 crore organized biscuit market. Hemant Mishra / Mint
In January 2005, Vinita Bali joined Britannia as chief executive officer; she was named managing director in June 2006. A consumer products industry veteran who had worked for Cadbury and Coca-Cola in several countries, Bali faced huge challenges in restructuring the company in the initial years. Her predecessor Sunil Alagh had left the company on a controversial note, and Britannia was losing share to aggressive new entrants such as ITC Ltd’s food division.
In the past two years, Bali has managed to get Britannia’s numbers back on the growth track. The turnover of the company has doubled in the last four years. In an extensive interview, she spoke on Britannia’s plans. Edited excerpts:
Has the successful resolution of the uncomfortable relationships Britannia had with Groupe Danone and Fonterra set the ground for the next stage of growth for the company ?
Let me clarify.... Danone and Fonterra were very different in terms of what it meant to the business. It is only the media which believed that the relationship was cantankerous on the Danone front. From the operational point of view, there was absolutely no impact due to whatever was happening between the shareholders, and for that I must give credit to the board of Britannia and the shareholders. On the Danone-Wadia (spat), I did not spend even two nanoseconds as it didn’t concern the operations part of the business.
Also See Baking Success (Graphic)
In the case of Fonterra, it was a joint venture. The decision to buy over Fonterra’s stake was discussed by the Britannia New Zealand Foods Pvt. Ltd board, the joint venture company. It was a good and mutually amicable decision. Remember Fonterra’s core business is not brands, though, like (they do) in Sri Lanka, they may have some brands (in some countries). Fonterra is a cooperative of farmers in New Zealand. They are different from a (traditional) multinational. Whereas Britannia’s business is brands; for Fonterra it was more of milk, milk productivity and expertise, which they sell to other large dairy companies like, say, Nestle, Kraft or Danone. We realized that the way milk is accessed in India is not going to change. So the decision to part ways were driven by strategy and the core competence of the joint venture partners…
Did you separate because the joint venture introduced liquid milk, which didn’t take off and you had to withdraw it from the market?
When the joint venture was done (in 2002) the model was different—that we would sell a lot of liquid milk and Fonterra would assist in backward integration of milk and milk supply. That did not happen because of the structure in which milk is accessed in the Indian market, where cooperatives form such a (vital) role. The whole assumption on which Fonterra’s entry was based was thus belied.
However, for Britannia, I see dairy as the next growth vector. Britannia is in the business of creating differentiated brands in the food space, which provide value through competencies we have. Ten years back not many people would pay for branded and packaged water or dahi (curd). Today that scene has changed… Our dairy business is today striking towards Rs200 crore (revenue)... We will outpace the market growth in the dairy segment over the next couple of years. We will look at widening and deepening our dairy portfolio.
Will the long rumoured entry of Britannia into packaged water also happen?
We continue to evaluate categories on an ongoing basis. We have looked at water in the past, and we will look at it in the future, but I can’t tell you now…
Biscuits is your largest business. It’s also a market that’s seen a lot of action.
Of the Rs8,500 crore organized biscuit market, we hold one-third market share by value (and about 38% by volume). In our brand portfolio, close to 12-13 million transactions take place everyday. That is huge. Our CAGR (compound annual growth rate) over the last two-four years has been 20-22%.
Sixty per cent of the market is still value (mass) market, where the volume and value are closely interlinked. So a Parle-G, Tiger and Sunfeast in the glucose category would be the same. We have tried to differentiate at the higher end of the market, say, in brands like Pure Magic and NutriChoice.
We have had six power brands (Tiger, Good Day, Milk Bikis, Treat, Marie Gold and 50-50), which we define as any brand that does more than Rs200 crore in business. Tiger is about a Rs700 crore brand today. Now given NutriChoice’s run rate this year, we will be adding a seventh power brand. Growth has come from our power brands.
Multiple things have contributed to our growth in the last four years. There is no magic elixir. The investments we have made in innovation, marketing, manufacturing and our brands have all started paying off. It is excellence in execution. For instance, when we say innovation today, we are the only biscuit seller which does not have transfat in products. We removed 8,500 tonnes of transfats. For the first time ever, we have filed for three patents in the manufacturing end, which we have never done before.
Sure, growth is back—revenue rose to Rs2,350 crore in the first nine months of 2008-09 from Rs1,892 crore in the corresponding period in 2007-08—but what about profitability?
For perspective, the watershed year was 2006-07. That was the year when the entire profit pool of the industry declined by 100%. If you looked at Britannia and Parle-G at that time—ITC was different because they were losing money in biscuits then and they continue to lose money in biscuits now—things are not the same. Britannia’s operating margins declined that year from something like 10.5 % to a tad over 5.5%. Our next biggest competitor (Parle-G’s) margin was even lower than that. That was because (prices of) all the basic commodities for the bakery industry—fat (oil), flour and sugar—went up by 25-30% concurrently. Over the last 3 years, we have absorbed Rs650 crore in commodity prices.
However, if I were to project from my third quarter numbers of 2008-09, as we haven’t declared yet our Q4 numbers, you will see a top line growth of 19-20% and a gross margin of something like 30%. We have added 350 basis points in our gross margins. And our intention is to continue to add to the operating margins. One basis point is one-hundredth of a percentage point.
At the same time, we haven’t been shy over investing in both our front and backend. For example, over the last three-four years, we have invested Rs250 crore in the backend. During the same period, we have taken out costs of about Rs150 crore of structural cost from the system and managed the rest through price and product, pack and geographic mix.
Graphics by Sandeep Bhatnagar / Mint
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First Published: Thu, May 07 2009. 12 24 AM IST