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Britannia: All set to 'milk' the market - Views on News from Equitymaster
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  • Sep 1, 2001

    Britannia: All set to 'milk' the market

    Britannia is the largest bakery products manufacturer in India. The company is the leader in the organised biscuits segment with a 38% market share (value-terms). It also manufactures bread and cakes. Currently, Britannia is focusing on expanding its business to dairy products like cheese, butter, ghee and dairy whitener.

    Groupe Danone, the 3rd largest food processing company in the world and Nusli Wadia of Bombay Dyeing hold a 22% equity stake each in the company through Associated Biscuits UK in which both are equal partners. Danone is actively supporting Britannia through its technological expertise in new product development.

    Britannia is an innovative marketer and has always been driven to expand its market. It has redone its whole image to target the health and nourishment conscious Indian consumer.

    Anticipating deregulation of the biscuit segment, Britannia consistently invested in expanding and upgrading its capacities since FY96. It has invested over Rs 2 bn in setting up new packaging lines and expanding its marketing and distribution reach. Earlier, Britannia had been forced to outsource 50% of its biscuit requirement because of the aforesaid reservation policy.

    Its competitors in the biscuit segment are Parle (30% market share), Bakeman’s (8%), Ampro (6%) and Kwality (4%). Britannia is the market leader in value terms, but Parle controls 44% of the total volume compared to Britannia’s 34%. However, Britannia recently bought over Kwality’s brands thus indirectly increasing its market share.

    Britannia had a weak presence in the largest biscuits segment – Glucose (36% of total biscuit market), aimed at the lower end of consumers. It launched Tiger in this segment during 1997. It has already become largest selling biscuit brand within Britannia's biscuit portfolio. However, the current downtrend has hit growth rates of this popular brand. Infact, in the month of July 2001, the Tiger volumes showed single digit growth of around 2.2% YoY.

    (Rs m) FY99 FY00 FY01 CAGR growth
    Net sales 10,023 11,395 13,384 15.6%
    Net profit 576 790 1,022 33.2%
    Operating profit margin (%) 6.7% 7.7% 8.6%  
    Net profit margin (%) 4.0% 4.5% 5.3%  

    Bread contributes about 5% to Britannia’s topline (FY01). The Indian bread market is largely dominated by the unorganised sector. Besides Britannia, Modern Foods is the only other national player in the branded segment. Despite this, Britannia has given this segment a low priority because bread is a low margin business growing at a meager 3-4% per annum, but is focusing on the premium bread segment, which has relatively higher margins.

    Dairy products are the new focus area for Britannia. In FY98 it contributed a mere 4.5% turnover. However, by FY01 this contribution has reached a sizeable 10% of turnover.

    Britannia’s decision to make a strategic foray in dairy business was only natural, as Danone (one of its promoters) is a world leader in the dairy business. Besides, Amul - the market leader had a virtual monopoly in the branded butter and cheese segment. It had been finding it difficult to keep pace with demand, hence the opportunity for Britannia.

    But despite its attractive business strategy and strengths, there are several concerns, which hound valuations. Since deregulation, a large number of MNC’s like Sara Lee have entered the biscuits segment. Increasingly, one can find imported dairy products in the shop shelves. Amul continues its stranglehold on the cheese and butter segment. Added to that Hindustan Lever is eyeing the bakery segment with a keen eye. This intense competition as well as sluggish market conditions may deter Britannia’s growth plans.

    (%) FY99 FY00 FY01
    Sales growth YoY 21.6% 13.7% 17.5%
    Net profit growth YoY 36.7% 28.8% 38.2%
    Advertising to sales ratio 5.8% 6.8% 6.4%

    Britannia is widely recognised as an innovative marketer. The brand’s association with cricket world cup schemes and the recent ‘Kaun Banega Crorepati’ and ‘Lagaan’ tie-ups stand testimony to this. Its tie-up with the postal department for post cards during the recent ‘Kumbh Mela’ is also a pointer to this strength.

    To expand its market, Britannia has had to increase its advertisement spends from 4% of FY97 sales to 6.4% of FY01 sales. Till now, Britannia has managed to consistently improve its net margins (from 2.5% in FY97 to 5.3% in FY01) despite the rising advertising expenses. But against the backdrop of recent slowdown in demand coupled with HLL’s impending entry into the bakery segment, the company’s margins may get affected going forward.

    However, in the longer term, Britannia’s marketing and brand building strengths coupled with the strategy of widening its presence across the processed food segment make it one of the top companies in the Indian processed food scene.



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