Financial Daily from THE HINDU group of publications
Wednesday, Apr 17, 2002
Britannia sees crisp growth continuing in bakery business
Mr Nikhil Sen
BANGALORE, April 16
BAKERY major Britannia Industries Ltd continues to command respect in the industry as a strong marketing company and a successful brand manager with a wide portfolio.
The newly-appointed Chief Operating Officer, Mr Nikhil Sen, gave an insight into the company's future strategies to Business Line. Excerpts:
The bakery business accounted for almost 88 per cent of Britannia's topline in the first nine months of 2001-02. After the recent move to hive off the dairy business into a separate joint venture with New Zealand's Fonterra, do you see a change in the bakery business' contribution?
The bakery business will continue to contribute about 88 per cent of our topline. I see no change in that.
It is said that the dairy business is a sunrise industry with around 35 per cent growth predicted year-on-year, whereas the bakery business is rather matured with growth pegged at about seven per cent. In this context will the hiving off have any impact on Britannia's growth in the immediate future?
It is true that the dairy division may post higher growth than the bakery business in the coming years. But don't forget that the seven per cent growth of bakery business is on a larger base and is still a sizable organic growth. The per capita biscuit consumption in India is hardly one kg, while it is six times more in the developed markets.
A recent NCAER (National Council for Applied Economic Research) study shows that biscuit penetration among the Indian population is 26 per cent, whereas the penetration of other FMCG products such as cooking oil is around 80 per cent.
It shows that the bakery business has still a long way to go in this country.
The idea of hiving off business into subsets (as in the case of dairy) is to create better all round focus. This will help both the core business (bakery) as well as the subsets. The move to hive off segments into joint ventures happen only if the core business is robust and strong.
Hindustan Lever Ltd (HLL) has announced plans to enter the biscuit market and its strong retail presence in the rural markets could pose a challenge to Britannia. Where will Britannia find its growth in the coming years, from urban or rural markets?
Let me ask a question. What is the biggest success story in Britannia during the last five years? It is the Tiger brand of biscuits. It sells predominantly in rural markets. Can you name any other brand (other than Tiger) in the country which became a leader in its segment just six months after the launch.
We have been equally strong in the urban segment. Last year, in the midst of talks about recession, we launched Maska Chaska in the premium end of the market (priced well above Rs 100 for one kg) and made a success out of it.
Tiger brand accounts for 30 per cent of Britannia's volumes and about 15 per cent in value terms. There are opinions that the brand is showing signs of maturity and may not show the high growth rates like in the recent past...
The brand is positioned to attract consumer conversions from unorganised sector (which even today accounts for 60 per cent of the biscuit sales) to branded market. It is a low-cost quality product selling unchanged at Rs 4 for 100 gm since 1997. Recently, we launched two flavour variants, which will keep the basket of currencies expanding and add to the profitability on account of better profit margins.
Which brands are critical for your company's future growth? Can you name the most significant in terms of value earnings? Will there be new brand introductions?
In terms of the contribution to the profit share, most of our premium-priced brands like 50:50, Good Day, Cream Treat are big and significant. Last year, Maska Chaska, a variant of 50:50, brought significant value to the company.
We don't have plans for new brand introductions. But we will launch new variants of the existing brands to tap gaps in the consumer value chain whenever we sight an opportunity.
For instance, we may look at occupying some space in the teenage market of 12 to 18 year-old consumers, which is dominated by brands such as Cadburys.
We are also looking at mega family packs and sachet (on-the-go) packs, which the shampoo guys have used so effectively, to drive penetration.
Following the hiving off of dairy business, you will be sitting on a pile of cash. Last year, you had a successful buyback. Will you go for another round? Are there any acquisitions targeted?
We are open to inorganic growth, but there are no acquisition targets identified. As far as buyback is concerned, only the company's board can take a decision.
Is there a possibility of Danone hiking stake in Britannia?
I cannot answer that question. You will have to ask Danone.
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