Companies

Britannia signals two price hikes this fiscal

Abishek Law | | Updated on: Nov 12, 2021
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Move to offset raw material cost rise and inflationary trends

The country’s largest biscuit-maker, Britannia Industries, mulls at least two price hikes this fiscal — 7.5 per cent in third quarter FY22 and 10 per cent in fourth quarter FY22 — to offset raw material cost rise and inflationary trends.

While a third of this price increase comes into effect at the consumer-end (through hike in MRP), the remaining two-thirds is grammage reduction driven.

The makers of Good Day cookies and Tiger and Milk Bikis biscuits had in second quarter implemented a 4 per cent price hike and 1 per cent in the quarter before.

Gross margins had declined 502 basis points, or to 37.5 per cent year-on-year, for the quarter ended September 30. According to Varun Berry, Managing Director, Britannia Industries, there is also a quarter-on-quarter inflation in inputs and “there is no substitute for price increases in an environment like this”.

“We’ve gone ahead and implemented pricing. One-third of our pricing is through MRP changes and two-third is through grammage reduction, which takes time because you’ve got to experiment, you’ve got to get the settings right of the machines, etc,” he said in the post-earnings conference call.

Effect of grammage reduction is expected to play out in the third and fourth quarter; with explicit price hikes (at consumer level) remaining more or less unchanged or witnessing minor upward movements during the second half, company officials aware of the moves told BusinessLine .

Price points make a big difference in most of the categories – biscuits, bridge snacking, cakes and so on. So, ₹5, ₹10 (round price points as some companies say) are “in any case is fixed”. Making them ₹6 or ₹11 shies away a consumer. A large part of Britannia’s portfolio has been on fixed price points.

“So you have to do grammage reduction there. So, wherever you have a round price point you have to do grammage reduction to take a price increase,” he explained.

Inflationary pressure

There are the four major commodities that Britannia consumes – flour, sugar, palm oil and milk.

Flour and sugar are at a deflation of 7 per cent and 2 per cent internally for the foods-company (but are at a inflation at the market levels). But both flour and sugar from India have got “export parity” thereby making them susceptible to inflationary pressures.

“We’ve got to watch out and see how this stands out and how much export we see for these two commodities from India, which will definitely reflect in the pricing as we go forward,” Berry said.

Refined palm oil has seen a market inflation of approximately around 54 per cent (and for Britannia it is at 46 per cent); while milk, which is at an inflation of 15 per cent.

“But a bulk of the inflation is coming out of refined palm oil for us,” he maintained adding that industrial fuel prices are up at 35 per cent, and packaging materials cost up at 30 per cent; thereby leading to an overall inflation of 14 per cent in the quarter ended September.

“But the entire inflation is going to get covered through either cost efficiency programs or the pricing that we’ve taken by the end of this year,” Berry added.

Volume growth

Analysts say volume growth may remain tepid over the next two quarters, owing to pricing measures.

However, Britannia — whose nearest competitor continues to be Parle — with its pricing power is expected to gain market share in biscuits and expand in cakes, wafers and salty snacks.

“As far as margins are concerned, we’ve taken all of the measures and all of the actions that will get us back to where we would like to be. And if the demand scenario continues the way it has been in the last three months, then we should be in a very good place,” Berry explained adding that its premium products had done well in the run-up to the festival season.

Published on November 12, 2021

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