Fortune India Exclusive: Building Britannia into a large food company may be a mixed bag, but biscuits a more profitable business today, says Varun Berry

It’s a busy day for the Britannia head honcho, Varun Berry, at the company’s headquarters in Whitefield, Bengaluru. He has been in meetings through the day with the management and he steps out apologetically to tell us that we would have to wait. It is probably to do with the GST cuts announced by the Government, I assumed. The lowering of GST to 5% would mean decrease in prices or increase on grammage.

When he finally meets us an hour later, he says that the latter is more likely (grammage cuts) for over 70% of his portfolio are in the Rs 5 and Rs 10 price points. “We are mentioning price per gram on the packs, which will show that our price per gram is going down. It will take time because adding biscuits is not easy, because you have to make sure that you get the pack right, get the packaging film as per the new artwork. We will do it as quickly as possible,” says the executive vice-chairman, managing director and chief executive officer of Britannia Industries.

In the twilight of his career, the FMCG veteran is all set to hand over the baton to his successor who he says, has been hired. “You will come to know about my successor in the next three months.”

When Berry took over the baton of Britannia in 2013, the mandate was to put the company on the growth trajectory. Though the biscuit major was doing the right things in terms of its product, growth was evasive. In the years that followed, Berry ensured that the company’s profits grew over 70% till FY21. That was also the time when he envisaged a vision of building Britannia into a foods company. The past few years have been difficult for the company to maintain its high growth and high profitability trajectory, primarily due to the macro-economic conditions.       

The journey of building Britannia as a food company has been a mixed bag, he says. “There are some categories we have done extremely well and some we have done average. We have done really well in croissants and wafers, but I wish I could say the same about the existing categories. In cake we have grown in single digits, I would to have liked to grow in double digits in cake as well, as it is a highly indulgent category. Rusk has done extremely well. In dairy, shakes have done well, but cheese is middling it.”

He is clear that he will not dabble into newer categories for the time-being. “We are saying we will consolidate and let’s not get into more till we are able to build these categories to the level we had expected earlier.” The target is to become a Rs 25,000 crore (currently close to Rs 18,000 crore in revenue) company in the next three-four years, but the growth would come through consolidation of its existing category and putting might behind those which haven’t performed as per expectations.

The last few years have been tough for the company. “Whenever you have rampant inflation it’s tough to take quick action on price increases because competition is taking up prices, your being as competitive becomes tough.”

“Moreover, implementing price increase in our segment is tough because 60% of the business is Rs 5 and Rs 10 and there you have to reduce grammage and that always is time-consuming. You have to reduce a biscuit in most cases, but you are not able to reduce it because they are small packs you have to reduce the size of the biscuits so that the stack remains intact. All that takes time. It requires lot of R&D and manufacturing time to get that done, and in that process, you do lose some bit of profitability,” he further explains.

Making Business of Biscuits Attractive

The past few years has seen a host of regional biscuit brands entering the fray, and Berry likes to take credit for making the category attractive for entrepreneurs. “Earlier, the category profit used to be 2%-3% and now it is 15%-16%. It is because of us taking costs out of the business and not playing the pricing game. Earlier, there used to be a lot of price fights happening in the market. We have taken a lot of costs out of the system because of the cost efficiency programmes that we run.”

He says during his tenure as CEO of PepsiCo Foods, he often told the team to look at biscuits. “They would look at the Britannia profitability and then say there is no profits so why should we get into it. They had a $6 billion business of biscuits in Mexico and they could easily transpose that to India, but they didn’t. Similarly, when entrepreneurs in India, now see profits in biscuits, they say this makes sense.”

The golden rule to profitability was to ensure that the organisation didn’t succumb to rampant price cuts to gain market share. “In UP we have low share, so, can we reduce prices? Sometimes I would hear that from the board as well. I would say no, because if I do it in UP, competition will do it in Tamil Nadu, where their shares were low and our profit pool will go for a toss. So, we stuck to the fact, that you have to play by the rule for the entire industry to move up and that happened.”  

Berry says that the big boys in the industry guys played ball with Britannia to increase profits. “Everyone wanted profit increase but someone had to take the lead role and not play dirty. We played the lead role and never played in the price game.”

Responding To Regional Competition

Building a profitable category has led to a situation where the company has to deal with multiple competitors, mostly regional. “Indian entrepreneurs are smart and they could smell profits. They saw the category is becoming profitable and they started to mushroom. The regional brands have gained, but a lot of them go out of business in a period of time but some of them have sustained.”

But brands do matter and Berry says that they have been taking advantage of their brand and its legacy. “We have not lost share to regional brands but we are on guard and we deal with them one at a time. We understand their strengths and weaknesses and work on that. We make sure that we play in those areas where these players are stable and doing well. We understand and push them back in the right way.”

The strategy has been not just to penetrate distribution or increase grammage, but also to do region specific formulations. “We are trying to operate in many Indias rather than one country.” He talks about how the company has re-looked the formulation of its most popular brand, Britannia Marie, in the East. “The local players have a fluffier product. We have launched Doodh Marie, which is a fluffy product and it’s going to counter local players in those markets (West Bengal, Odisha and Bihar).”

Similarly, in the North, in Punjab, the company has launched a sweeter variant of Nutri Choice Digestive without increasing sugar. “In the North, people want a sweeter product. The Iocal company has made it sweeter and consumers are loving it. Without increasing sugar, how do we give that perceived sweetness to the consumer. You can do that without adding sugar as there are crystals which give you that feeling of sugar.”

The new packs of Britannia products with price/grammage cuts would have already made it to the warehouses of its distributors and even retails. Berry expects a level playing field. He says that GST rates being reduced to 5%, could be a motivation for those regional brands who so far have been evading GST to become organised as the rates are not that high now. “The market certainly we will get more competitive. I do think organised players and large all-India players will have an advantage.”