Demonetisation has derailed India’s recovery: Britannia’s Varun Berry
Britannia Industries Ltd managing director Varun Berry feels the time has come for him to step up the focus on innovation at India’s largest biscuit maker. He has cut costs, revamped the management team, streamlined the product portfolio and brought the focus back on a handful of brands.
Now that he has sorted out the big problems he inherited while taking the top job and Britannia has moved well beyond a “hand-to-mouth” existence, Berry is laying the foundation to transform it into a “total foods” company.
In an interview on the sidelines of the launch of its research and development facility and first company-owned factory in Karnataka, Berry discussed everything from the need for innovation to the impact of demonetisation. Edited excerpts:
How far away is Britannia from entering new product categories?
Wait for a week. We are going to make our entry into a very exciting new category which is non-existent in the country today, but has the potential to become a very large category. So, it’s (us) betting big on something that’s not there today. But in similar countries around us, it has become a very large category in itself. That’s going to be the first move into an exciting world of innovation.
What is the advantage of having your own R&D facility?
What this R&D centre is giving us is a very different take on innovation. I was in London on Diwali day and I came back with two boxes of very thin rusk with a lot of inclusions. Within two weeks, he (Sudhir Nema, vice-president, research, development and quality) came to me with a (similar) product that he made himself. He made it in the R&D centre. This gives us end-to-end capability.
How does it compare with the R&D facilities of your rivals?
A lot of the things that you see here, nobody else will have in India. We are trying to make it into a really state-of-the-art facility with end-to-end capability from producing to changing to testing to everything.
You have cut costs, streamlined your team and product portfolio, and thrown your marketing weight behind your power brands. What made you feel now is the right time to focus more on innovation?
We had so much to do to get to ground level. Once we got to ground level, now obviously, the job is a lot more than just building walls. Now, it’s all about interior decoration. These are the kind of things that will help us get to products which are evolved and very different. This is the right time. Plus, we have got money. Earlier, we were hand-to-mouth all the time. We didn’t have enough profitability. There was no cash in the bank. Now, we have got cash in the bank. We are looking for home for the cash in terms of how do we get better returns. And what better returns than making sure that you have a state-of-the-art R&D centre, which gives you the desired products.
What are the products that you will launch in the next six months?
You will certainly see very disruptive products in biscuits, rusks and evolved cakes. You will also see one new category.
You talked about your own factory in Bidadi will bring the ratio of in-house to contract manufacturing to 60:40. How do you see that changing?
Maximum it will get to 70:30 in maybe two to three years. It just gives us flexibility.
Where will your next facility be?
It will be in Andhra and Maharashtra. And Maharashtra could be the mother of all facilities.
The Maharashtra facility is going to be large because of two reasons. One, Maharashtra is a very large market for us. Second, except for Bombay, we have got a low share in Maharashtra. (So) we have got a potential for much larger growth than other areas. Third, it’s also a premium market (in which) evolved products would work.
Considering your focus on innovation, would you consider investing in any FMCG start-ups?
There are lots of these small start-ups which are doing some very interesting work. They are creating products which are very exciting. They are very nimble. What we have decided is we are going to create a fund, which will be like a venture capital fund. Obviously, there will be a committee which will take decisions on where to invest. We will (use that fund) to invest in some of the these interesting startups in the food space and take an early-stage stake. It will be the best thing to do.
Do you think the demonetisation move has derailed the recovery in rural demand?
Not just rural, I think the overall country’s recovery. We were just about seeing categories starting to pick up. I think it has derailed it for sure.
Do you see a recovery in the fourth quarter at least or will we have to wait longer?
It might come back to normal or just about below normal, but is it going to have the same kind of momentum that we were seeing in the last three months? Probably not.
How hard is it to retrain customers when it comes to moving to cashless payments?
It is very tough, very, very tough. Rural economy is all cash. People don’t even have credit cards. Forget about Paytms and the rest of it. It is going to take a very long time. We are underestimating the power of the common man, in Shah Rukh Khan’s words.
You talked this morning about cutting back on manufacturing by up to 20% following the demonetisation-related slowdown. Are we going to see you cut back more?
Only time will tell. It started off at 20%. Now, it’s sort of at 15%.