Catalyst

Britannia’s battle for market share

Vinay Kamath | Updated on January 16, 2018 Published on December 29, 2016

Varun Berry, Britannia’s Managing Director

Varun Berry, Britannia’s Managing Director, says the reason for the company coming back as the top biscuit maker is the beefing up of its distribution muscle

Soon after he had taken charge of the company in early 2013, Varun Berry, the lanky Managing Director of Britannia Industries, was on a tour of stores with his Area Sales Manager in Bhubaneshwar, a good market for its brands. On Biju Patnaik College Road, a major thoroughfare, the first large outlet stocked all the Britannia brands, as did the second and the third, and Berry was happy. Till they came to a smaller outlet. No Britannia there, not even a Marie.

Berry turned on the ASM and asked him why Britannia was not present in this store. “The ASM looked at me as if I was from Mars, completely bewildered, and said, ‘Boss, this is too small an outlet for our brands’. I realised then that the company had lost touch with distribution and had become more of a marketing company,” he recalls.

Berry believes that the trigger for regaining lost ground in the past few years has been the aggressive focus on distribution. “From 2000 to 2013, we were losing share big time. The category growth was 18-19 per cent and while Britannia was also growing, we were continually losing share. I said if share was eroding then it would be sure death for the company. We had to regain share. In the last four years, we regained share and we are about a third of the market. We were the number two player and now we are back as number one,” Berry explains. While it remained at the top in premium cookies, it had slipped overall, but now, he says Britannia is back as the largest player by a fair margin, besting Parle.

Retail detail

Berry told his team that they need to be serving every outlet on the beat. “We were servicing only 6.5 lakh outlets directly. Now, that’s not on. Frito-Lay (a Pepsi brand, where Berry worked almost two decades), at one-fourth of the size, was serving 1.1 million outlets directly. Now, Britannia serves 1.4 million outlets directly and the total number of outlets reached, through wholesale distributors, has gone up by a million to 4.5 million. But, the country’s markets for biscuits have around 7.7 million outlets, so that’s some more distance to cover.

Berry recalls that in his days in sales at Hindustan Unilever, they used to look admiringly at the loyal Britannia distributor but much had changed along the way. Distributor attrition had become high as they complained of stocks dumped on them and consequent issues with working capital. Berry says he had to take some tough calls then, by letting go over 450 field staff, reducing overheads and putting a more efficient system in play. The company also hacked the SKUs (stock keeping units) it had in the market, from 320 to 200, which too Berry thinks is too much. Earlier, the distribution system did not have the ability to handle multiple products either. “But, now we have seen a huge expansion in distribution; one of the big reasons why we are where we are is the availability of our products in the right way,” he explains. The distribution bandwidth will be critical for the launch of new products. A new R&D lab commissioned recently at a cost of Rs 50 crore at Bidadi in Karnataka, next to its biscuit factory, will spearhead innovation in new and existing categories.

With the distribution backbone now humming along nicely, the focus is now on fine-tuning its presence in its existing categories of biscuits, cakes, rusks and dairy while also looking at new ventures. Berry isn’t saying, but Britannia is close to signing a deal to enter a completely new category in foods with an overseas partner. “In other countries it is a very large category, but in India it will be completely new,” is all he will say.

Exploring new pastures

Berry has embarked on a careful evaluation of each category it is present in and also looking at categories where, as he says, the company has a “right to succeed”. In cakes, for instance, it is looking at bringing a dimension to the basic product it has been doing for years. Or, in bakery, it could look at expanding its range to include croissants, which he cites as an example. “In the Middle East, for instance, croissants are like biscuits, filled croissants, those with a longer shelf life,” he adds. Salty snacks is another area Britannia is exploring but it won’t be Indian ‘ namkeens’ which is a high-volume, low-margins game. “I don’t want to get into a diluted category, it should have the potential to grow and also be accretive to our margins in the long run.”

Most analysts are bullish on Britannia’s strategy on biscuits. A report by HSBC Global Research says, “We believe Britannia has a long-term right to win in biscuits and bakery, and its portfolio of brands is strong and formidable, has a large growth opportunity with its premium positioning in the growing part of the biscuits market along with a robust supply chain and operating model.” Britannia does recognise the threat at the premium end from ITC and at the mass end from Parle and a growing Patanjali.

Breakfast is another category that the company could look at, though the company already burnt its fingers with a few ready-to-eat products such as oats, poha and upma, all withdrawn now. “When we do it, we will have to do it in a way that’s researched to death. Breakfast is large, but no company has cracked a product that is a wow for an Indian housewife.Indians want hot breakfasts, but with freedom to add value to it. There are double-income couples who want breakfast in a hurry but even there that sense of adding value and eating healthy needs to be there. Breakfast will be the last one we will attempt. We started work on it, but we are a good three years away from it,” he elaborates.

Dairy digest

In dairy, Britannia has a Rs 500-crore business that is waiting to be revved up. “We are now comfortable setting up the back end. Procuring and processing milk is not that difficult, but what is creating a bit of hesitancy in me is the front end and not so much the distribution. What are the big categories that we can take to market; do we have the expertise and the ability and will we have a pipeline of products that we can launch for the next five years,” are the questions Berry is pondering. But, Britannia has to move fast as the global dairy majors are already here: Lactalis, Danone, Kraft, Bongrain are all looking for a slice of the Indian market. And, then, of course, there’s Amul.

Britannia now is the number two player in dairy, even though Amul is several times its size. In cheese slices, Britannia actually sells at a 25 per cent premium to Amul. “We are evaluating the mix. I am quite excited by the opportunity that dairy offers, cheese for sure, since we dominate, we will look at various forms of cheese, dairy drinks, yoghurt, desserts … you go to the Middle East where you can see an array of spoonable desserts available. Those are the categories we would like to enter. A lot of work is happening on this front and it will take us three to six months before we put steel in the ground,” he explains. But, its renewed dairy foray won’t go wide and will be more urban as it’s a delicate product and will be distributed to 1.5 lakh outlets at the most. “First stop will be cheese in various variants and second will be milk-based drinks,” adds Berry. That could well be the creamy layer of its plans.

Quick takes

On breads & small unit biscuit packs Breads was growing but this year it’s been flat because of the potassium bromate controversy. But, it’s now coming back. Our objective is profitability; we focused on getting costs out and also took up prices. The packaging is working well for us. We are getting share, but we are not excited about topline and share; the whole story is about margins. Small biscuit packs are a fairly large part of the total business; Rs 5 to Rs 10 packs is almost 50 per cent. They will always remain important till the time you get nothing for Rs 10!

On rural & demonetisation Rural for us is weaker than urban; it’s about 70 per cent of what it is in urban. We have appointed 9,500 rural distributors, who cover on an average around 40 outlets. Rural is growing double digits. Demonetisation affected us a bit, but it will come back.

It’s becoming better, we have still not come to base numbers, but things are becoming better. In the first 10 days, urban was affected big time but after 10 days, urban started to come back quickly while rural dropped off a cliff. Wholesale has been affected, if you look at channels. In another month we should come back to normal. The momentum was coming back and that time demonetisation became a tight situation. We are less affected than other categories as it’s an established category.

On new categories We are so large, a big part of our growth still comes from our base. In the next five years, we will get two to three points of growth from the new categories but we will do one category at a time, not all together. We have to execute each well. I would say that they will start to contribute in their respective years of launch. What I will focus on is to structuring the organisation in such a way that business units continue looking after their categories and nothing interferes with the launches. When you are close to Rs 9,000 crore in revenues, even if you do Rs 100 crore it is a small percentage, but finally it will all add up. You will see our first launch towards the second half of next year and that will probably be our biggest bet.

Published on December 29, 2016
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