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Leveraging strong brands and product lines - Views on News from Equitymaster
 
 
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  • Dec 18, 1999

    Leveraging strong brands and product lines

    Eat Healthy. Think Better. For India`s second largest biscuit manufacturer,Britannia (market share 15 percent), this new punch line seems to have worked wonders. The company has since then turned more aggressive when it comes to marketing efforts, new product launches and taking on competition. The newfound vigour has also hastened the company`s entry into the dairy (cheese, butter and milk) segment and it is likely to enter the mineral water segment shortly.

    The company`s strong brand and product lineup is a key asset. It owns a number of successful brands including Milk Bikis, Tiger, Little Hearts, Good Day, Mariegold, Premium Bake (bread), Pure Magic, Bourbon and Snax, some of which are leaders in their respective categories. In the dairy segment the company has made significant inroads in the cheese (market share 30 percent) and butter markets where it competes with the hugely successful Amul.

    The company benefits from its strong parentage (Group Danone and Nusli Wadia jointly hold a 44 percent stake in the company). This has given Britannia access to the latest technology and product range of Danone, which is the world`s largest producer of fresh dairy products. To support this product line up, Britannia has an enviable retail distribution network covering 2,200 towns comprising 400,000 retail outlets and 2,500 distributors. It has consciously focussed on the rural markets (agriculture based income) that are witnessing a spending boom after eleven consecutive years of normal monsoon. These factors have helped Britannia capitalise on the recent demand surge for bakery and dairy products.

    The company is however not resting on its past achievements. It has initiated a comprehensive restructuring exercise that should enable it to emerge as a leaner and more competitive company. The first of these is a plan to rationalise the work force that should see the company`s employee strength reduce by 1,000 to 3,000 numbers. Apart from reducing costs, this move will enable the introduction of new technology (capital intensive) that will help in improving product quality and employee efficiency.

    As a second measure, the company has taken a conscious decision to reduce the number of brands in its portfolio. Britannia has already shed 10 brands in the last three years and currently owns 20 brands. This has helped the company in concentrating its marketing efforts on a smaller number of brands. For its new product launches the company has been increasingly using brand extensions rather than creating new brands.

    (Rs m) 2QFY2000 2QFY1999 Change
    Net Sales 3,054 2,655 15.0%
    Other Income 26 35 -25.7%
    Expenditure 2,827 2,489 13.6%
    Interest 21 14 50.0%
    Depreciation 40 39 2.6%
    Profit before Tax 189 148 27.7%
    Tax 62 46 34.8%
    Profit after Tax 127 102 24.5%
    Net profit margin 4.2% 3.8%  

    Finally, Britannia has positioned itself in a manner that should see the biscuit major launching new products aggressively in its areas of operations. These factors should ensure that the company maintains a competitive edge over other players.

    Britannia`s dream run has, however, not been absent of the occasional stumble. The first of these was the not so enthusiastic response to the launch of the flavoured milk drink, Zip Sip. This is sure to upset the company`s plan regarding its foray into this segment. Then there is the intense competition that Britannia is facing from the leader in the cheese and butter segment, Amul. Although the company has managed to grab a foothold in the market, increasing market share will be a humongous task. Finally, the company has seen its bottomline fall victim to the bloated and highly paid workforce. Although the company has stated that it is in the process of rationalising its employee base, margins are adversely affected.

    The immediate challenge facing the company is to withstand competition from the reinvigorated market leader, Parle, which has been reinforcing its product offerings and stepping up ad spend. Added to this are fears that consumer product and food sector heavy weight Hindustan Lever Limited (HLL) (51 percent owned by Unilever) is considering entering into the bakery and milk product segments. In such a scenario Britannia would have to take on the distribution strengths of HLL and the product line up of Parle. This could have significant impact on profitability in the coming years.

    Britannia has been successful in responding to the changing environment. However, the future seems as uncertain as ever. Although the company has overcome its internal drawbacks. whether the same will hold true in the case of external competition is yet to be seen.

     

     

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