The secret behind Britannia's success

The mantra for the biscuit maker is simple: Run a tight ship and make prudent investments in manufacturing and distribution.

Varun Berry, the 52-year-old executive director & chief operating officer of  Britannia Industries, is riding a crest of good news.

The biscuit company's stock price has more than doubled since the start of this financial year, and net sales and profits are up 13.65 per cent and 109 per cent.  Analysts are bullish about the company.

The metamorphosis is the result of a well-thought-out strategy that Berry has fine-tuned over the past twelve months since he joined the Bangalore-based company in January last year.

“Our focus will be on growing the top line. At the same time, we will make sure that our back-end remains tight. Because if your costs are not tightly managed, you can hardly be competitive,” says Berry, an  FMCG veteran who has worked for PepsiCo as its chief executive and for Hindustan Unilever as part of its core leadership team.

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The main plank of this strategy has been manufacturing its own products. Britannia has spent nearly Rs 300 crore in the last two years to take control of manufacturing, much of which was earlier outsourced.

Three new plants have come up — one each in Bihar, Odisha and Gujarat — and  another one is being set up in Tamil Nadu, taking the total number of plants owned by the company to 12. These will together take care of 50 per cent of the company's manufacturing needs, with the rest coming from the 27 plants of contract manufacturers across the country.

Berry’s drive towards captive production is fuelled by changes in the government's manufacturing policy. “Manufacturing is a key part of our strategy because it will allow us to retain the advantage of technology as well as best practices. Since the government opened up biscuit manufacturing three years ago, having earlier reserved it for the small-scale sector, we have quickly capitalised on this to set up our own plants,” Berry says.

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However, the executive director knows that change in strategy has to be handled with care. Britannia’s Managing Director Vinita Bali, who manages international operations, had set into motion the process to control costs and expand margins in her earlier posting as head of India operations. Berry has galvanised this process. 

Taking over from Bali

“He (Berry) is very aggressive on the revenue front and has accelerated what Bali had begun. It is visible in the company’s performance since the first quarter of 2013-14 as perhaps Berry may have been given a much larger role in the India business even before the official announcement (of his appointment) was made,” says an analyst, who did not want to be named. He has given a ‘Buy’ rating to the maker of Tiger, Good Day and Marie biscuits.

Standard Chartered in its second quarter results update last month said, “Despite low margins in the recent past (4.9 to 6.6 per cent over FY10-13), we believe Britannia's 9 per cent operating profit margin (9.5 per cent achieved in the second quarter) is sustainable given stable input costs and tight control over operational expenses.”

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While company watchers have long speculated that Berry’s induction into the company will give Britannia’s bid to transform itself into a well-rounded food company a boost, Berry says that he has no plans to step into new categories or even grow the existing dairy business, which gives Britannia 10 per cent of its revenues. 

“Dairy is a Rs 65,000-crore (Rs 650 billion) business. Bakery, comprising biscuits, cakes, rusks and bread, is Rs 30,000 crore (Rs 300 billion) in size. We play in both the segments and are committed to both. For now, however, I am happy keeping the 90:10 revenue split as far as bakery and dairy go. At a later stage, when I think the dairy business can be scaled up, we will certainly look at it,” Berry says.

Instead of going after newer segments, Berry has set the ball rolling to create innovations within the existing categories. A French national, who Berry declines to name, has been hired as the head of R&D and quality control.

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His task: Create interesting new products for Britannia.

“Ideally, we would like to get at least 6-8 per cent of our revenues per year from innovations. That figure averaged about 4 per cent in recent years, and this year we haven't done any innovation because we wanted to step back before we leapt forward. Both, at the bottom of the pyramid and at the top, you will see a lot of excitement around innovation as we go forward,” Berry says. 

Moving on from Parle-G

Nobody denies that Britannia was among the earliest players to recognise the value of premium products. It allows the company to do two things: operate in categories that give it better pricing power and ensure that consumers get better products.

“People want better products. How long will they consume Parle-G and Tiger?” asks Berry, alluding to popular rivals.

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The company’s products, which are priced 5-15 per cent higher than peers, puts Britannia in a comfortable spot to drive growth of its high-value biscuits, cookies, cakes and dairy items to improve sales.

This strategy has traditionally worked well for Britannia in urban areas and the company now hopes to replicate some of this magic in rural areas through low-unit packs of these products. Berry says that most of Britannia’s biscuit brands are now available at Rs 5, including its popular Good Day and Marie. 

At the same time, the company is focusing on improving its distribution footprint in its endeavour to achieve a wider footprint. “We want distribution to grow successfully. For that, the ability to create infrastructure and reach out to more outlets, display our products better ensure that consumers reach out for our products or are seeing our products with our brand name is key,” says Berry.

Britannia's overall retail reach is 3.6 million outlets, marginally higher than rival Parle Products’ 3.3 million outlets. Berry admits that Britannia's distribution network can be better.

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“Taking manufacturing to centres of consumption is part of this plan,” he explains. “At the same time, however, we need to supplement manufacturing with distribution especially in areas where we remain weak such as the north and west of India." 

In fact, markets such as Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Bihar and Uttar Pradesh are top of on the company's priority in terms of improving penetration and reach of its products. "We are underleveraged in markets such as Gujarat where we are merely 40 per cent of our national share. Things can certainly improve there,” Berry says. 

A significant proportion of the distribution machinery that Britannia will set up in these markets will be in rural areas.

“In Gujarat, for instance, where snacking happens a lot, our urban-rural split of business is 75:25. On an all-India basis, however, our urban-rural split of business is 60:40. Again, there is room for improvement as far as rural penetration in Gujarat goes,” he says.

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Street expectations

A combination of strategies from higher-priced products in urban areas to increased distribution as well as a focus on rural areas is expected to help bolster sales in the current fiscal, analysts say.

Sales growth for FY14 is likely to be in the region of 15 per cent, analysts estimate, higher than the 13 per cent the company clocked in FY13, but still lower than the 18 per cent and 24 per cent it saw in FY12 and FY11 respectively.