Our aim is to have profitable growth: Vinita Bali4 min read . Updated: 27 Jul 2010, 10:36 PM IST
Our aim is to have profitable growth: Vinita Bali
Our aim is to have profitable growth: Vinita Bali
Bangalore: The Rs10,000 crore organized biscuit market in India is witnessing an intense battle for market leadership, with a recent Nielsen report indicating that the privately-held Parle Products Pvt. Ltd (which does not disclose its numbers) may have pipped the Nusli Wadia-led Britannia Industries Ltd in revenues. However, a combative Vinita Bali, managing director of Britannia, disputes the report and claims that her company’s operating margins are nearly double that of Parle and her emphasis is on “profitable growth".
A little over five years after she took over as the chief executive and later on as managing director of the company, Bali has managed to double the revenues of Britannia, but net margins have been an area of concern. Rising input costs of the three main ingredients, fat (oil), flour (wheat) and sugar, along with increasing competition from players such as Surya Food and Agro Ltd (which sells Priyagold biscuits), ITC Ltd’s foods division (which sells under the Sunfeast brand) and the entry of international major Kraft Foods Inc. into the Indian market is likely to have an impact on the company.
In an interview, Bali spoke on what Britannia is doing to improve margins and take on the competition. Edited excerpts:
In the last five years, while revenue has doubled, your net profit in fiscal 2010 was lower than what it was in fiscal 2006. What have been the key challenges?
We have grown (revenue) at a CAGR (compound annual growth rate) of a little over 15% over the last five years. In the first four years (of my tenure), the top line growth (was) at around 20%, but last year was a challenge.
In spite of that, Britannia has (nearly) twice the operating margin of its largest competitor (Parle). But it is like saying I am the tallest midget. I take no joy in being the tallest midget. Our net margin is 6% compared to the 2.5% of our largest competitor. Our aim is to have profitable growth.
What about the recent Nielsen report on Parle having emerged as the largest player in the segment?
I don’t know where Nielsen is getting its data from. Sales which happen at railway stations, bus terminals and to channels like canteen stores (of the defence services) and sales at BPO (business process outsourcing companies) have not been audited. It is a fact that Britannia has lost market share in the glucose segment. But the glucose segment itself has come down from around 34-35% of the overall market to around 29%. We will not play the discounted price game in the glucose segment even if it means losing some (market share). Outside of glucose, in the other 70% biscuit market, we clearly continue to be the market leaders with a 38-39% market share. We remain the most profitable player in the industry, even as we continue to deliver double-digit revenue growth.
What has been the impact of rising input costs?
Five years back, wheat used to be Rs900 a quintal, it is Rs1,600 now. Sugar used to be Rs14-15 a kg, it is Rs29 a kg now. While all players have been impacted, we have been able to manage better than others. Our stress on innovation, both in terms of products and packaging, plus our wide array of brands to address different market segments, have helped us. Over the last four years, we have taken about Rs180 crore of cost out of our system. We are currently in the process of removing out even more inefficiencies.
Any rethink on the pursuing the seven power brands strategy since you carry a long tail of brands too?
Tiger, Good Day, Milk Bikis, Treat, Marie Gold, 50-50 and Nutri Choice are the seven power brands behind which we provide every element of marketing mix. That strategy has served us well.
However, it doesn’t mean that the other brands aren’t doing well or that themanagement isn’t focused on them. In fact, several of them have been growing in double digits.
What will be the impact of the likely entry of global food major Kraft?
Britannia has always faced local, regional and national players. We are ready for international ones, too. They have got good competencies and good brands. Some of those brands are already available through imports here. McVitie’s, for instance, who were earlier importing, have now set up their own manufacturing facilities. I am sure Kraft will do the same. (I) am actually delighted about their entry as they are likely to bring a degree of rationality into the market and also help expand the overall market size.
Per capita, Indians consume half the number of biscuits that a Sri Lankan or a Vietnamese does. So, there is room for us to grow.
We produce about 35% of the stuff we sell in our own factories, the rest is outsourced and, in some cases, we have equity partnerships in those outsourced manufacturing facilities. We are setting up two new facilities of our own, apart from the four factories we already have. We are in the process of finalizing the capex and the locations.
What about the other segments of the market in which Britannia operates?
Dairy continues to be a huge growth area for us where we have had a number of launches, including zero-fat milk, dahi, varieties of cheese and fortified drinks. Dairy is about Rs200 crore in terms of revenues for us. Rusk and bread is about Rs400 crore, and we get about Rs175 crore from the Middle East where we continue to expand. So, in all the segments, Britannia continues to grow robustly.