Britannia to adopt leaner biscuit portfolio4 min read . Updated: 04 Feb 2015, 12:11 PM IST
Britannia is looking to increase market share, margin gains by aiming its product innovation efforts, advertising spending on five key brands
Bengaluru: Cookie maker Britannia Industries Ltd is cutting underperforming biscuit brands and pack sizes from its large portfolio as the company looks to increase its market share and margin gains by aiming its product innovation efforts and advertising spending on five key brands.
The lean brand portfolio approach, which is also being adopted by rival Parle Products Pvt. Ltd, represents a big shift from earlier years when biscuit makers launched hordes of new labels, brand variants and flavours.
Some other consumer goods companies such as United Spirits Ltd and Mondelez India Foods Pvt. Ltd are also adopting the power-brand strategy as they seek to increase sales of premium products and boost margins.
Britannia, which has 13 biscuit brands, has identified five so-called power brands—Good Day, NutriChoice, Tiger, 50:50 and Marie Gold—around which the company will lead its innovation and marketing efforts, marketing director Ali Harris Shere said in an interview.
“By consolidating brands, we’re also consolidating our investments. All our power brands operate in each of the large biscuit categories. We’re able to start to dominate each category—not necessarily in market share terms, but at least in things such as brand recall, share of voice, etc. We’re trying to take away monies from our smaller, less productive brands and putting the money back into our power brands," Shere said.
Late last year, Britannia, which has gained market share from rivals Parle and ITC Ltd over the past 15 months or so, already cut its namesake cookie brand and launched the product under its Tiger label. Britannia’s other brands include Jim Jam, Milk Bikis, Little Hearts and Nice Time. Some of these existing brands will continue to be independent while others are likely to be merged with the company’s five key brands over time, Shere said.
After years of consistent double digit volume growth, gains in biscuit sales slowed sharply in the past two financial years because of rising prices and the weak economy. Biscuit makers, who had already launched several brands in the boom years, tried to boost growth by introducing new products and flavours but customers didn’t take to most of those launches.
According to industry executives, the biscuit market is worth roughly ₹ 24,000 crore currently. Though companies don’t disclose market share figures, some analysts estimate that Parle is the market leader with a 33-35% share, while Britannia has roughly 27-30%.
Saddled with bloated portfolios, these companies are now trying to simplify their supply networks, marketing efforts and all-round product management by taking the axe to laggard brands as well as pack sizes.
“Overall we are cutting our SKUs (stock keeping units) significantly. There’s a project going on called the “SKU rationalization"—if there are two SKUs which are very close to each other and which don’t have a different role, we’ll cut there," Shere said.
Cutting underperforming brands can help boost margins and improve efficiency within the organization by moving spending to more productive areas, said Gaurav Gupta, senior director, retail, at Deloitte.
“Companies do this from time to time—after a phase in which they launch many brands, they sit back and analyse which ones aren’t working and then these products are removed eventually. Portfolio rationalization becomes especially important in low-margin categories," Gupta said.
In 2000, India’s largest consumer goods maker Hindustan Unilever Ltd also pursued a power-brand strategy for a few years, and after limited success, it again started launching several new products to add versatility to its portfolio.
Over the past 18 months or so, Britannia has been an outperformer among consumer goods makers, reporting significant gains in both margins and market share.
Earnings before interest, tax, depreciation and amortization margin (an indicator of operating profitability) soared to 10% in the September quarter from 6% in the year ended 2013, helped partly by stabilizing costs of wheat and sugar, while revenues also grew consistently ahead of industry rates in that time as the company improved its distribution network.
Its share price has nearly quadrupled in that time.
Britannia appointed Varun Berry as managing director last March, 10 months after promoter Nusli Wadia had made Berry the de facto company head. Over the past six months, Berry has put product innovation and new launches at the top of his priority list to make Britannia the largest biscuit maker by overtaking Parle.
Since November, Britannia has launched two premium brands—NutriChoice Heavens and Good Day Chunkies.
The company is planning to launch new labels this year within its key brands, Britannia’s Harris said.
“We will add verticals within the five power brands. 50:50 will see some work within the next two quarters and you will see a big shift in the way Marie looks," he said.
Britannia has also been among the first consumer goods companies to tap online retail sites for distributing products. It introduced Chunkies through Amazon.in exclusively for a fortnight before the brand was distributed to stores. Now, most of Britannia’s brands are available on sites such as BigBasket.
“Reaching consumers through the traditional channels—kirana stores, supermarkets, etc—is not going to go away but we also want to be among the first ones to experiment with the new age, emerging channels. We’d launched Good Day Chunkies exclusively on Amazon and since consumers had the product before (it launched offline) this helped create a lot of buzz in the general trade even before the product came into the market," Harris said.