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B U S I N E S S I N D I A N February 8, 2009 Corporate Reports

In June 2003, when Sunil Alagh, thethen high-profile CEO of biscuitmajor Britannia Industries Ltd (BIL)

quit the company, it was in a crispyshape; high with a market share of close to 47 per cent. Then for two years,Nikhil Sen, the COO, ran the company,when it started losing ground. Themarket share had dwindled to 39 percent by 2005. Worse still, the com-pany’s operating profit margins, whichwas 11 per cent, had dropped to 6 per

cent, combined with the fact that thesenior executives were in exit mode. Tosum it up, the company faced a crisis of confidence.

The management, taking stock of the situation, roped in Vinita Bali assuccessor to Alagh in January 2005. AnFMCGmarketing veteran, Bali had pre-viously worked with beverages giantCoca-Cola in its global headquarters inAtlanta, besides a stint with Cadbury inEngland, South Africa, Nigeria andIndia. Bali readily accepted BIL’s offer.

“Besides the challenge of steeringthe company, it was time I came backto India. In BIL, I saw an opportunity tobring back my learnings of over theyears and apply them to an Indiancompany. Bringing the internationalexperience to domestic turf, now I seean opportunity to put BILon the globalmap,” explains Bali, MD who in herfirst year at BIL’s headquarters in Ban-galore saw to it that systems andprocesses were put in place. Then shetook forward what Alagh had initiated– the transformation of the companyfrom biscuits to a diversified food anddairy products manufacturer, as well asre-positioning of the Britannia brandand launch of the mass market brand,Tiger. “In this direction, I started chalk-ing out strategic moves that could bemade in the market place.”

“It has a strong trustworthy brand. Ihave grown up with it. Initially, Ilooked for low-hanging fruit in termsof manufacturing, selling, marketingand distribution. I found some

untapped areas and opportunities toinvest in enhancing productivity. In allthis, we made assets more productive,”adds Bali, pointing out that ‘Britannia’continues to be the most trusted foodbrand of India. In a survey conductedby AC Nielsen ORG-Marg, consumersvoted brand ‘Britannia’ among the Top10 most trusted brands across cate-gories for the fifth successive year.Across all categories, it was rated as theseventh most trusted brand in 2008.

“In the last two years, with anincreased focus on expanding the port-folio of offerings and presence acrossprice points, we have penetrated acrossdemographics and geographies,”explains Neeraj Chandra, VP& COO atBIL. Chandra had started with Hindus-tan Unilever, where he learnt aboutsales and marketing. Around threeyears ago, when Bali was looking forthe right athlete for the job, she hadspotted Chandra.

“BIL had a robust history of growth

(double digit) in the previous twodecades (prior to my coming onboard); hence, I was attracted by theoffer to join the company. It also had astrong and good foundation, it was justabout making the go-to-marketapproach stronger,” adds Chandra,

looking at various initiatives taken bythe management in the recent past.

Today, the results are here to see.One, in the last two years, BILhas man-aged to hold on to a market share of around 35 per cent (Parle’s share is 36per cent) of the Rs8,000 crore industry,which is growing at the rate of 8 percent per annum. ITC and Surya Foods(Priya Gold) command a market shareof 9 per cent and 12 per cent respec-tively, among the organised sectorplayers. Two, in the case with BIL, the

operating margins from 6 per cent(2006-07) has bounced back to 7.5 percent (2007-08), whereas ITC has beenlosing money. However, with com-modity prices rising on a quarter toquarter basis, the environment is get-ting challenging for food companies,as prices of key raw materials such aswheat flour, refined palm oil, skimmedmilk powder and other dairy products,as well as energy, are rising.

Currently, the industry is operatingin an high and unprecedented cost sce-nario. The result is huge pricing pres-sures with limitations on price hikesfor the entire industry and a shrinkingprofit pool. Wheat and oil prices arealready showing an increase of morethan 20 per cent. In addition, steepincrease in crude oil prices and hikes in

‘Tiger’ uncagedCapitalising on its power brands, Britannia hasmapped out a strategy beyond Indian shores

We are the most profitable bakery

company, says Bali

P H OT O S : S OR A B ME HT A

(Rs crore)

*Consolidated figures

2007-08

2006-07

Net profitPBTEBIDTANet sales

2 , 7 7 7

2 , 2 6 6

1 3 1

2 3 6

1 1 6

2 1 8

1 0 5

1 7 7

Improving margins




petrol and diesel prices announced bythe government has resulted in a sig-nificant increase in price of packagingmaterials, freight and production cost.“Yes, margins are down, but we are themost profitable bakery company,”admits Bali.

“We are in the same boat as others.It is cause for concern,” adds Bali, look-ing at input cost reductions where themanagement has been shutting manu-facturing units, as a strategy to opti-mise savings of cost. Also in the

company-owned manufacturing units,it has started channelising waste heatof the ovens into manufacturing. “Wehave done technology changes in theprocess and manufacturing side,” saysChandra.

“Almost 85 per cent of the biscuitsare made by contract manufacturingunits. As a strategic initiative, we areincreasing our holdings in contractmanufacturing firms to have greatercontrol over quality, etc,” disclosesBali. Recently, BIL has purchasedGanges Valley Foods, one of thebiggest contract manufacturers,located at Dankuni, West Bengal. Bri-tannia and its subsidiary have majoritystake and control over the company.

“Outsourcing helps the company tocontrol costs, as plants are low cost,labour is not in the books of the com-pany and there is enough flexibility toalter production plans,” states a Moti-lal Oswal research report on BIL.

“BIL’s latest results (quarter endedSeptember 2008) showed good tractionin revenues (up 27 per cent on a 17 per

cent volume growth), but cost pushhas created pressure on the operating(EBIDTA) margin, pushing it down 250basis points. The launch of value-added products and variants hashelped Britannia grow rapidly. Insteadof a price war with ITC, it is launching

products like Nutrichoice, a rangeunder the Tiger brand, and variants of its cream biscuits. The company alsoaims to strengthen its bread, cake andrusk portfolio with the re-launch of breads. These measures should help itreport higher growth rates and betterprofit margins in the future,” saysAmitabh Chakraborty, president(equity) at Religare Capital Markets.“From the stock market point, FMCG isa defensive bet, and under currentcircumstances, the sector is finding

favour with the investors”.“With the recent initiatives takenby the company, like reduction inweights in few packets by around 10per cent without reducing the price, weexpect the company to see an improve-ment in profit margins,” states ShirishPardeshi, senior analyst with AnandRathi.

“Initially, BIL had lost its marketshare to regional and smaller players

such as Priya Gold and later to ITC. Weunderstand that the company lostabout 3 per cent market share to ITC,especially in the mid-segment,” statesAbhijeet Kundu, analyst at AntiqueStock Broking.

Taking on new playersInterestingly, ITC entered the biscuitsegment in 2003 as a part of its overallforay into the growing foods sector.During this period (2003 onwards), BILhas faced immense pressure from theaggressive approach of this deeppocket player. Within a short period,ITC’s Sunfeast brand straddled multipleproduct and price segments and nowcommands a space in the minds of consumers. “Products like Dark Fan-tasy, Golden Bakery, Butter scotch

creams, Orange Marie, etc, deviatedfrom the established offerings andhave created a favourable consumerdisposition,” says Chitranjan Dar,COO, ITC Foods Division, who feelsthat ITC’s foray into biscuits has beentremendously aided by its provenstrengths in fields as diverse as con-sumer understanding and brand build-ing, distribution and logistics,manufacturing and supply chain,

1000

1200

1400

1600

1800

Share price (Rs)

Jan 2008-Jan 2009

Volatile on the bourse

T he relationship between the French

company Groupe Danone and the

Mumbai-based Wadia group, headed by

Nusli Wadia, began a decade ago when

the two came together to fight the late

Rajan Pillai for the control of Britannia

Industries Ltd (BIL). They then formed

ABIH Holding, a 50:50 JV , as a special pur-

pose vehicle registered in the UK, which

hold 51 per cent in BIL. This relationship

was leveraged further and, in 1995, a

new JV was formed between the two. This

new entity, Wadia BSN India, was meant

to manufacture and sell food products

and beverages in India, covering all

Danone products. But, till date, this ven-

ture has not moved.

According to the Wadia-BSN agree-

ment, if either party becomes aware of

any new business opportunity relating to

a food or beverage product in India, it is

supposed to convene a meeting of direc-

tors to decide whether it would be in the

best interest of the company to pursue

such an opportunity. If the directors of

the two companies do not agree, either

of the two could go solo and exploit the

opportunity.

So, on 20 October 2006, Groupe

Danone made no secret of its plans to

establish a direct presence in India’s grow-

ing consumer space and informed Nusli

Wadia that there is an investment oppor-

tunity in an Indian company called

Avestha Gengraine Technologies

(Avesthagen) and that they plan to invest

and take about 5 per cent stake, much to

the chagrin of the Wadias. This sparked off

the bitter on-going saga between the two.

Prima-facie, there are three issues

between Danone and the Wadia group:

• Britannia owns brand ‘Tiger’, which has

been launched by Danone in Southeast

Asia as its own;

• Danone wants to enter the packaged

water and food business in India without

Wadia-Danone face-off

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product development and R&D.“ITC is doing what any new player

in the market does – imitating andemulating the leader. And cash fromthe cigarette business certainly helps,”points out Bali. But unlike BIL, ITC hasbeen losing money in this business.

“ITC is focussing on improving prof-itability and attaining profits. Thecompany is working in its biscuitsproduct mix, which has led to pruningand going slow on low margin prod-ucts. This, in turn, could lead to lowercompetition in the glucose segment forBIL. Overall, we could witness consoli-dation in ITC’s biscuit portfolio, andhence, lower competition for BIL as awhole. Additionally, the competitionfrom smaller and regional players havealso reduced, with higher input cost

inflation containing their scope forscaling up of operations in a growingeconomy,” observes Kundu.

Another player that has becomeaggressive is Surya Foods that manufac-tures the Priya Gold brand of biscuitsand commands about 12 per cent mar-ket share. “We are not focussing onglucose, which is about 5 per cent of our sales. If you remove glucose fromParle and Britannia, then we may be

the highest seller of premium brand of biscuits,” says Shekhar Agarwal, direc-tor, Surya Foods, which has 23 variants– Butter Bite, Kids Cream, Marie Lite,Cheese Cracker, Cheez Bit, Big Bossand Bourbon Cream, among others.

Like BIL, Agarwal, too has plans toenter into the cookies, cakes and con-fectioneries segment. “Trial produc-tion is going on for cakes and cookiesand will hit the market shortly. We arealso entering into chocolates, wafersand éclairs, and trial production isgoing on at Haridwar,” adds Agarwal,who runs the IRCTC food kiosks at vari-ous railway stations. “Cakes, cookies,chocolates, wafers etc. can be pushedeasily at these kiosks as well and we canexploit our ready distribution network.We are regularly increasing distribu-tion strength. These new products fitinto our overall aim of becoming anintegrated food company over a periodof time and these new products offernew growth avenues.”

Clearly, the fight for the top slot isbetween Britannia and Parle. But atrend that could help organised playerslike Britannia, Parle, ITC and SuryaFoods grow, is the shift of biscuit con-sumption from the unorganised tobranded market. According to statis-tics, in the last three years, the organ-ised biscuits market share has increased

from 50-60 per cent to 75-80 per cent.The shift and growth in favour of theorganised market is primarily attrib-uted to the implementation of value-added tax and the removal of exciseduty on all biscuits with MRP up toRs100/kg, providing the opportunity

for players like BIL to contain con-sumer prices without burdening themwith commodity inflation.

“Biscuits and confectionery hastremendous growth potential as thepenetration in India of these cate-gories is low and per capita consump-tion is much lower than in the West.Competition is going to be tough withnew players entering in the category.It is going to be true for any highgrowth category with limited play-ers,” says Pravin Kulkarnii, GM, mar-

keting, Parle.Looking at the breakup in BIL’sbiscuit sales (which form 89 per cent of the company’s total sales, contributingRs2,329 crore in 2007-08), 45 per centcomes from the premium segment(Good Day, Nutrichoice, Treat andBourbon), while the contribution fromthe mid segment (Marie, Milk Bikis and50:50) and mass market (Tiger) is 25per cent and 30 per cent respectively.Both premium and mass markets aregrowing at 20 per cent, while the midsegment is growing at 10 per cent, thusleading to an overall sales growth of BILat 17 per cent.

‘Tiger’ drives growth“In the premium category, the keygrowth driver would be Good Daywhile, in the value-for-money cate-gory, Tiger would drive the growth forBIL,” says P. Shyamsunder, VP and atwo-decade-old veteran with BIL, cur-rently responsible for quality andinformation systems. He has to lookafter some 70-odd outsourcing units,supported by BIL’s own employeesposted at these locations, where heconducts training programmes at theshop floor level.

“In order to contain the marketshare, in the last few years, we strategi-cally focussed on the cookies and glu-cose category. In the case with cookies,we strengthened the brand positionthrough the launch of variants andhigher ad-spend and in the case withglucose, we introduced small priced

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Chandra: ‘We are expanding our market

from the kids to grandfathers’

involving the Wadias; and

• as Danone holds part of the equity and

not a holding stake in BIL, the Indian

company is reluctant to share the

accounts with Danone, as was done pre-

viously when BIL’s business was consoli-

dated with Danone.

Although Wadias have moved the

court regarding the first two issues,

there are reports that both parties will

agree to an out-of-court settlement and

one of the partners is most likely to buy

out the other party’s stake. “The share-

holder issue has no impact on how we

run or execute strategy,” explains Bali,

looking at the day-to-day running of BIL.

All said and done, the clarity of single

ownership will help the company man-

agement to focus more on the business.

However, one must remember that, in

the past, the ownership of BIL has

changed hands four times (since it

started as a small business with an initial

investment of Rs295 in Calcutta in

1892), but there was no indication of

loss of business on this account.



packs to reach out to the maximumpopulation, and to increase conve-nience of consumption,” says Bali, amarketing wizard, who has used all theknowledge she gained in her previousjobs with MNCs to make this 90-year-old company occupy more shelf space

than the competition.There were also a slew of innova-

tions that came from BIL. For instance,in the glucose category, it added vari-ants like coconut, creams and banana.“Then, we also got on to the ‘healthand vitality’ based platform,” pointsout Bali, where through the ‘Nutri-choice’ brand BIL has variants likeNutrichoice 5 grain, Nutrichoicesugar out and Nutrichoice digestivebiscuits. “The company has been ableto leverage this ‘health’ pitch effec-

tively,” says a competitor.“In promoting ‘baked is healthierthan fried’, we are expanding our mar-ket from the kids to grandfathers,focussed to reach people, where theyare and giving them a variety tochoose from,” explains Chandra,pointing to the fact that for impulseconsumption BIL launched ‘Chota’packets, which opened new opportu-nities in its go-to-market approach.“We got involved with the consump-tion movement,” adds Bali.

In the bread, cake and rusk busi-ness, BIL crossed the Rs270 crore markin 2007-08. “This business had dou-bled in two years, as we had alsoacquired a 50 per cent stake in theBangalore-based company, DailyBread. The strategic stake in DailyBread is expected to help us under-stand the bread business in a bettermanner,” says Chandra. “Daily Breadhas grown in excess of 50 per cent dur-ing the year. Our focus is to drive prof-itable growth and we are constantlyevaluating opportunities to enhancethe business model and have goneahead with franchisee operations inplaces like Goa.”

“We have received an overwhelm-ing response and extended theseproducts nationally. The segment of bread, cakes and rusks is growingrapidly. Brand building and innova-tion are key drivers of strong growthand one will continue to see moreproducts in these categories from theBIL stable,” promises Bali, who is

banking on product innovations, newmarketing initiatives and outsourc-ing, to act as the three key pillars thatwill give a boost to BIL’s profit mar-gins. In this direction, she is all set totake any hard decisions that wouldhelp BIL’s bottomline which last yearimproved by 77.5 per cent to Rs191crore from Rs107 crore in 2006-07.

Beyond biscuitsOver the years, leveraging on thethree growth vectors of brand, geogra-phy and channel, BIL’s product linehas gone beyond biscuits to packedmilk, cheese, butter, buttermilk andyogurt. Like the breads, cake and ruskbusiness, Bali activated the dairy busi-ness which BIL always had but did notinvest time and money into. “We aretrying to create a consumption occa-sion for our customers throughout theday: breakfast, lunch and dinner andalso in between,” says Bali, trying tograb a large portion of the consumer’swallet. “Our strategy is simple: to getmore people to buy and enjoy more of our brands – anytime, anywhere –everyday.”

Now that Bali is satisfied with BIL

staging a comeback, she has started topractice some of her early learningsgained in her jobs overseas. “I want totake BIL to the relevant markets,” dis-closes Bali, with plans to build BIL’s

international footprint. Already, 5 percent of BIL’s turnover comes fromexports; she wants to double it in thenear future. Her destinations areplaces where the consumption pat-terns are similar to India.

In March 2007, Bali had already

made Middle East the first interna-tional stop for BIL’s geographic expan-sion, when it acquired a 70 per centstake in two Middle East companies -Strategic Food International, Dubai,and Al Sallan Food Industries inOman. Both these are regional playersin biscuit and cookies in the GCCmar-kets with brands like Nutro, FamilyChoice and Baker’s Pride. In addition,these companies export their prod-ucts to over 30 countries spreadaround the world. “The Middle East is

one of the fastest growing marketswith synergies in terms of consumerprofile, tastes, habits, attitudes, etc,and provides a huge opportunity forgrowth. BIL’s brands gains access tothe distribution channels of thesecompanies,” explains Bali.

Guided by identity of the growingmarkets and the risk profile BIL canlive with, Bali has extended BIL’sinternational operations to Sri Lankato create a profitable business in thecurrent year. “We will pursue acquisi-tions as a strategy to expand to inter-national locations. Although weexport to developed markets like theUS, Canada, Australia, Singapore, etc,we have no plans to acquire compa-nies in West Europe or the US that areshowing negative growth. Why beatour heads when opportunities lie inneighbouring countries,” she reasons.

Regarding the domestic scene,“When the GDP is growing at 9-10 percent, people have more money tospend on everything but, at 5-6 percent, they are careful,” feels Bali. “But,one must remember that we are still ina growth phase; hence, we are in a bet-ter position,” concludes Bali, sayingthat though these are challengingtimes for FMCG players, with BIL’sbuilding blocks in place, it is onecookie that will not crumble easily. Butthen, if the crack deepens in the on-going legal tussle between Wadia andthe French major Groupe Danone, itcould add a twist to BIL’s tale.

N LANCELOT JOSEPH

The key growth driver would be Good Day,

says Shyamsunder

Corporate ReportsB U S I N E S S I N D I A N February 8, 2009

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business india says 08 feb 09

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