Britannia wants a bigger bite out of top-end biscuits

Britannia Industries' newly-appointed managing director, Varun Berry, is all set to kick off a new biscuit war. But surprise: This battle will not be fought to get hegemony in either the value or the premium segment of the market, that together constitute over 96 per cent of the Rs 23,000-crore biscuit market.

Berry has decided to blaze all his guns at the top end of the biscuit market, where it will take on ITC's Sunfeast Dark Fantasy and Mondelez' Oreo. Britannia would soon be looking at more brands and innovations in the category where it has had a muted presence with Pure Magic so far.

The top end in biscuits might be only four per cent of the market but it has a lot going for it. That is because Indian consumers are used to eating biscuits as a basic snack, but with per capita income going up, there is a clear need to go up the value chain and change the habit.
While ITC is still ahead of Mondelez in the segment with its Dark Fantasy, Britannia has not focused on the top end on a similar scale. It has been battling the increasing premiumisation of Parle Products, the largest biscuit player by overall volume, which also has an enviable distribution in value and premium categories.

Berry's confidence in the top-end stems from global realities. He says that in Egypt, which has a per capita income that matches India, 15-20 per cent of the biscuit market is in the top end. So there is no reason why the same should not happen in India, especially since the biscuit market in Egypt is smaller in value. "I expect that this market will become 15 to 20 per cent in the next few years in India as the three-way fight between us, ITC and Mondelez will only grow the market," argues Berry.

The change, of course, has other fundamental ramifications. It could alter the margins of the biscuit business. Margins in the higher-end is as high as 50 per cent or nearly two and a half times more than the value segment, and the prospective positive impact on a company's margins would be too compelling to ignore.

While Berry has lined up product innovation for the top-end, he is making key changes in the bread and butter segments that bring in the bulk of its revenues. He is planning to increase its rural reach and the depth of distribution in urban India. It is available in 3.6 million outlets, but he is targeting to take that up to 5 million in the next three years. That is nearly double of what soft-drink companies (Berry was in PepsiCo) undertake (2-2.5 million outlets).

Berry also points out that Britannia has weak distribution in the north and west, especially in Uttar Pradesh and Gujarat, which are large biscuit-consuming states. Berry would be plugging the gap by setting up plants in these states. There would also be large plants in Orissa, Bihar and Uttaranchal.

New plants would get built but not before a rationalisation that Berry has initiated. His strategy is to reduce the number of factories and have fewer of them to get the advantage of economies of scale and maximum capacity utilisation. So, from 65 plants earlier, the number is now down to 35, and his target is to reduce it to only 20. Britannia is also trying to increase the amount of biscuits that get produced in the in-house plants, rather than at contract third-party manufacturers'. Britannia has six company-owned plants, and five in which it has an equity stake. These 11 factories constitute over 50 per cent of its biscuit production.

The plans around biscuits do not mean that Berry is ignoring Britannia's dairy business, which constitutes only five per cent of the business (cheese, yoghurt, ghee, flavoured milk) for many years now.

Berry says that he is not going slow on purpose, but has to formulate a clear strategy to take dairy to the next stage. There are various options which he is considering - whether it needs to get into a JV with an original equipment manufacturer (OEM) to process dairy products better, or look at an international alliance. He, of course, has to find the answers soon, as Britannia is present mostly in some big cities. The question is whether he will be able to bring his touch to the dairy business the way he has done in biscuits so far.