On a bright summer morning in March 2013, the top sales team at Britannia converged in one of the company’s conference rooms for a meeting. Bengaluru is not known to be oppressively hot, but the announcement on that particular day was sure to send the temperature soaring. Varun Berry, the company’s chief operating officer, was to chair the meeting, and after making some regular shop talk, he dropped a bomb on the assembled audience. “We are dropping all discounts and schemes to the trade,” he said, tersely. The salesmen gathered in the room looked at each other in complete disbelief. After all, as a company, Britannia’s strategy to build market share thus far was to pamper the trade with heavy discounts and this decision was, in every sense, a shocker. “It was a decision that kept me awake at night for a long time after that meeting,” laughs Berry today as he narrates the story. None of his colleagues at the meeting saw the funny side to it, though, and before long, the decibel levels had taken off. “Things will be very difficult for us in the market” was the uniform complaint. In fact, some believed that it would cost Britannia dearly and that the company was only putting itself in a losing position. Berry heard everyone out and merely said with a degree of finality, “I am sticking my neck out and this is my decision. If we lose, we lose.”
Back then, it had barely been six months since Berry had joined and there was no inkling that he would take such a dramatic decision. To put his sales team at ease, Berry said he knew this change would be difficult to implement overnight. “But we need to put this on the calendar and it has to be done,” he said, in the most reassuring manner possible. Of course, Berry was acutely aware of the gravity of this challenge. “If the plan bombed, I would have been blamed for it. But there are times when you have to take tough decisions,” he explains. Well, he did take the bull by the horns and his team did deliver: less than three months after that meeting, trade loads — discounts and schemes in sales jargon — were history and there hasn’t been a need for Britannia to revisit the scheme ever since. Just knocking off trade loads has meant a cost saving of 30% over the past three years and one that goes straight to the bottom line, says Berry. Of course, this is only one of the many initiatives taken by him from the time he took over at the company in 2013. Each of these initiatives has been with the purpose of cutting costs and pushing sales. Be it increasing the number of turns or reducing the proportion of products that come back from the trade from 1.5% to 0.7%, in the end every move must enhance the bottomline.
Conversations with the 54-year-old Berry never quite take off if the subject matter is the growth of a brand by revenue alone. Instead, his attention peaks when you talk to him about brands making higher margins. The salesman in him is intact even after three decades in the business, and he hones this aspect of his personality by spending a week each month in the market, even after taking over as Britannia’s managing director in April 2014. “I join the sales teams for full-day assignments and have hardly ever been recognised,” he smiles. And this is no newfangled obsession that he has developed at the biscuit giant — ex-PepsiCo India chairman PM Sinha, who was Berry’s boss when he was with PepsiCo, recalls, “Berry would spend nights with the sales teams in small towns. Maybe they would all have a drink together to break the ice. He would mix very well with people and it was a very effective way of getting more information about the market,” he says. That feedback mechanism always helped. At Britannia, for example, it enabled Berry to bring about some significant changes that distributors appreciate. Says one of Britannia’s Mumbai-based distributors, Vipul Mehta of Mehta Marketing, “A year-and-a-half ago, Berry introduced a zero-day stock investment scheme, under which Britannia’s products arrive every day, compared with once a week in the past. For the distributor, this means less space required in the godown, less wastage, a better credit cycle and the ability to meet the retailer more often.” All of which works in the company’s favour as well.
So, how did Berry actually turn things around at Britannia? Well, for starters, as announced during that summer meeting in Bengaluru, he completely chopped off trade commissions. This meant that the retailer’s discount schemes — for instance, selling an additional pack or two of biscuits free with a box of 24 or 36 — went out of the window. Berry cleverly utilised the additional cash flow from the slashed trade discounts to increase direct consumer connect and brand recall. While the spend on advertising and sales promotion was maintained at 8% of sales (in FY15, this number stood at Rs.551 crore), the component of consumer-facing spend was hiked. In the past, of the 8%, a little over 40% (3.5%) went into trade, while the other 4.5% was consumer-facing. “Over the past couple of years, as trade spend has trended downwards, we are spending more on the consumer,” Berry explains. Today, of the 8%, barely 2.1% is spent on the trade and 5.9% goes in favour of the consumer.
Then, Berry put in place measures to ramp up distribution and energised the brand’s sales team and network. Says Mehta, “In 2013, Berry split the sales team to track two different sets of products — with brands such as Marie and Tiger in one group, Good Day and Bourbon in the other.”
That decision was part of Berry’s strategy to turn the company’s focus back to its power brands. Britannia had close to 250 SKUs in biscuits and 120 in dairy when Berry took over. He decided to concentrate only on Good Day, NutriChoice, Tiger, 50:50 and Marie Gold, slashing other SKUs by 80 in biscuits and another 65 in dairy. A rejigged portfolio meant spending more time and effort on the brands that were bringing in the money, which only bolstered margins. Today, the company’s flagship brand Good Day is worth a whopping Rs.1,800 crore in revenue, commanding a 70% share of the premium biscuits segment, with Bollywood actor Deepika Padukone endorsing its premium variant Chunkies. Another brand that has flourished is NutriChoice, which also has a 70% market share and which has launched a variant called Heavens. Britannia launched new lines in the Tiger glucose biscuit brand as well. Essentially, the strategy was to inroduce new variants and increase the depth of its product offerings under power brands.
“Had we continued the way we were going, we would have been out of the market a decade back,” Berry explains, pulling no punches. The company’s situation was especially precarious three years ago, when Berry had just joined the brand. “We were losing market share, did not have a great relationship with distributors and products returned from the market,” says Berry. By any standard, things had to be shaken up at Britannia, which in 2013 was a Rs.5,500-crore company with a net profit of Rs.260 crore. The situation was exceptionally challenging in the cream biscuit space, with Oreo and Sunfeast getting aggressive and Britannia’s share in effect dropping to less than 15%. Britannia managed to hold on to its bread-and-butter businesses such as cookies, crackers and Marie, but could not make it in the high-growth categories. The intense competition in the biscuits category meant that it could not invest in new categories like breakfast products either. “We were extremely lucky that food habits take time to disappear. That’s probably why we’re still alive,” says the 6’4”-tall Berry — often called a gentle giant.
Berry could not have executed his strategy effectively unless he overhauled the sales team. “There was a lot of unproductive fat in the organisation,” Berry says. Britannia pared down its sales force from 1,400 to 1,000. “At the same time, getting talent from outside was expensive, so we decided to look for the right people inside and give them suitable positions,” he explains. One of the few people Berry brought in from outside was Hemant Rupani, who had worked with Pepsi and Vodafone before moving to Britannia as its head of sales and distribution.
That distribution needed an overhaul was drilled into Berry’s head on a visit to the interiors of Rajasthan in 2014. “It was the first time I was travelling there after joining Britannia and I found it impossible to find any of my products there. It was obvious that if we were to grow, it is not good enough to just be seen in larger centres like Jaipur,” he says. The brief to Rupani was clear — beef up distribution and turbocharge the sales team. The big issue for Rupani was the popularity of Parle in the crucial Hindi belt, where it is sold in 30 lakh outlets more than Britannia. Rupani embarked on a distribution overhaul, with a clear focus on direct distribution (reaching out to the retailers through distributors) instead of always using the wholesaler.
Consequently, while the wholesale contribution in value terms dropped to 30% from 40%, the number of retail outlets that stocked Britannia products through direct distribution rose to 10 lakh outlets in 2014, from 7 lakh outlets when Rupani took charge. “The plan is to double the number of outlets under direct distribution by the 2017 fiscal,” says Rupani. Compared with two years ago, the total number of retail outlets now stands at just under 37 lakh, up from 33 lakh. Of course, there is some distance to be covered before the company catches up with Parle’s 60 lakh outlets. Abneesh Roy, associate director, Edelweiss Securities, agrees and says distribution is not rocket science and the real benefits for Britannia will kick in once it fully enters the hinterland. “Closing the gap with Parle by creating more outlets will see Britannia clock additional revenue at a CAGR of almost 13% over the next four to five years,” he predicts. Meanwhile, rival Parle is not sitting pretty, either. “We would like to grow our distribution by 15-20% each year. Our obvious desire is to be present in every nook and cranny of India,” says Pravin Kulkarni, general manager (marketing) at the Rs.8,000-crore biscuit major.
Despite intense competition, Berry’s strategy has brought in rich rewards so far. And the numbers tell the tale. For the 2015 fiscal, Britannia’s net sales stood at Rs.7,858 crore, with net profit of Rs.688 crore, compared with net sales of Rs.6,185 crore and net profit of Rs.260 crore in 2013, the year Berry joined the company. (see: Wiping up the crumbs) Of course, Britannia’s profitability was also helped moderately by Berry’s good luck with commodity prices — all three key raw materials of palm oil, sugar and flour fell close to 10% during Q1FY16. However, if operating margins moved from 4.7% in 2010 to around 12.5% today, no more than 2.5% came from the softening in commodity prices. “The rest is only the result of efficiencies that have been built into the business,” Berry says, quite firmly.
Addressing his team at the company’s annual conference in Goa in September 2014, Berry was succinct with his top brass of over 120 managers. “Britannia was just a sliver (200 basis points) away from market leadership and I said it was important to regain that. Parle was a clear target,” he says. “It was a clarion call to the team.” Britannia overtook Parle in February 2015 in vaue terms; a year later, that leadership position has been retained, but Berry cannot afford to take his eyes off the marketplace just yet. In biscuits, where Britannia — at 29% — leads Parle by a wafer-thin 1% market share, there is no indication of competition abating. ITC occupies a significant 11% market share as well and has used its understanding of the hotels business to good effect. Its access to kitchens and recipes ensures that product innovation is always a key focus area, and success in the cream segment with brands like Dark Fantasy bears testimony to that. In the cream biscuits space, ITC, which also owns the Sunfeast brand, sits pretty with a 25% market share, while Britannia and Parle are at less than 20%. (see: How the cookie crumbles)
Berry admits that the company needs to get it right with cream biscuits and says it has been a lot more difficult than anticipated. “We have lost market share to Sunfeast and Oreo (a Mondelēz brand that has a 6% share). We still do not have a product that can compete well against them,” he says. Britannia’s big offerings in this space include Bourbon, Jim Jam and Pure Magic. Then, there is added stress from new Parle launches like Milano and Happy Happy. Overall, Parle now has as many as 25 brands, with almost half of that spread across cookies and cream. Kulkarni is candid when he talks about the company’s obvious shift towards the mid and premium segments. “This segment has been growing rapidly over the past five years and it was necessary for us to be here,” he says.
But a larger challenge in front of Berry is the overall demand for biscuits, which is growing by just 6-7%. Berry displays a rare mood of concern when asked about this. “In reality, all FMCG products are of small unit price, sold at Rs.5 or Rs.10. Consumption not taking off here is definitely a worry,” he says. To boost growth, Britannia also ventured further in the health field with the aforementioned NutriChoice Heavens. “In a segment like cookies, the penetration is almost 25-40%, while it is just 2-3% in health. That is where the growth opportunity lies,” points out Berry. It also means that such brands will drive the company’s product portfolio in the time to come.
Britannia’s not-so-hidden desire, of course, is to be a total foods company, and Berry makes no attempt to conceal that. Berry has set an ambitious figure of Rs.20,000 crore over the next five years — and a bulk of it will come from dairy. Before, taking that big leap, he is taking a shot at other products that can add to the kitty. Berry knows that he will have to contend with players who already have a stronghold in products Britannia would want to foray into. Thus, instead of hitting at the core, he is planning to start nibbling at the periphery with bridge products that build on the strength of biscuits. “We want to be in adjacent businesses such as breakfast, snacks and chocolates. We have to source business from each of them,” says Berry. For instance, Deuce, a recent launch under the Pure Magic brand, is a biscuit that features a slab of chocolate on it. Priced at Rs.30 for a pack of four, Deuce is a premium offering. “We are test marketing it in Bengaluru at present,” says Berry.
The breakfast business is one that Britannia had taken a shot at with a brand called Healthy Start launched all the way back in 2011 to sell oats, poha and upma. And while the brand is defunct today, Berry says he has plans to renew it. “We did not get it right with the supply chain, with the oats being imported from Australia, offloaded in Chennai and then transported to Punjab before being brought back to Chennai. It was a logistical nightmare.” Considering that the overall breakfast market today is worth Rs.800 crore and grows by about 20% each year, it can surely be a good growth area for Britannia. But cracking breakfast holds its own challenges. Harsh Mariwala, chairman, Marico, says, “There is no doubt that the breakfast market will grow, but you have to get the product right.” After struggling for quite some years, his brand, Saffola, with its range of oats launched in 2010, is today a Rs.125-crore brand. “One of the things we picked up very early was that the Indian palate preferred a savoury taste to breakfast and a sweet version was never going to work,” he says. It was with this insight in mind that Marico launched oats variants such as veggie twist, peppy tomato and classic masala, in addition to tailoring the offerings as per region, offering Pongal oats in the south, for instance.
Onto the milky way
In pushing the brand forward into premium and health variants and introducing a comprehensive foods line, Berry’s big bet will be in dairy products. Given its headstart in this space — Britannia had made its foray into the competitive dairy market with cheese all the way back in 1997 — dairy offers the company a huge opportunity, although not without its own set of challenges. However, currently, dairy — at Rs.400 crore — accounts for barely 5% of the company’s turnover, not a very great track record to speak of. But Berry says he is aware of this reality and is already looking at ways to grow the business over the next 7-8 months, starting with the procurement of milk. Currently, Britannia’s dairy portfolio consists of products such as milk, cheese, dahi, chaas, ghee, dairy whitener and butter. “A deeper analysis is in order and we have to decide if we are happy growing at 5-10% each year or aim to be a Rs.2,000-crore dairy business,” he says. Not surprisingly, Berry’s mind is leaning towards having a fully integrated dairy business, and not without reason. Britannia already consumes dairy products like skimmed milk powder and whey powder to manufacture its bakery products. “We have the experience of being in the dairy industry for 20 years, so we do have a chance of succeeding in dairy,” thinks Berry.
Currently, the company’s dairy products are manufactured by Schreiber Dynamix’s Baramati plant. The same company also supplies finished dairy products to Nestlé and Danone. In Berry’s view, an outsourced model of this nature means there are more heads that the profit has to be shared with. Not only does this put Schreiber in the position of charging high prices but also makes it reluctant to invest in new product lines for specific companies like Britannia, making product innovation difficult. Devendra Shah, chairman of Parag Milk Foods, a big player in the cheese segment with its Go brand, echoes the same view. It makes more sense to have full control of the value chain. Apart from not having any control over the cost of production, outsourcing leaves you with no scope for R&D. A case in point is his chutney cheese, which has been in the works for a year. “This would have been impossible with a third-party manufacturer. No one is going to give you a full production line to experiment with just one product.”
This is precisely why Berry is pushing for a dairy set-up and has pegged the initial investment for the same at around Rs.250 crore. RS Sodhi, MD, Gujarat Cooperative Milk Marketing Federation, owner of the Amul brand name, points out that the key challenge is consistent milk procurement and maintaining a cold chain. So far, private milk players have opted to give retailers higher margins in order to garner shelf space at outlets. And while that might have worked out in part, they still find it tough to deal with Amul’s prices. “We may offer very low margins to retailers, but nobody can beat us on price. It is a huge challenge to get both right in dairy,” adds Sodhi. Berry, however, thinks he can crack the business. “Time is not a constraint here and we will do what it takes to get it right,” he avers. The first phase will focus on cheese, ghee, milk powder and whey powder. Cheese is where there is money to be made, with margins of 30% — nearly 6x that in milk. As things stand, everything within the value-added dairy business is being considered, including health drinks, which he says might take time. Berry is also exploring ways to combine dairy and his now robust biscuit business.
Saving on costs
While these grand plans will take time to take shape, Berry will have more gains to pocket riding on further cost rationalisation and productivity gains. When Rupani started out, the annual savings from productivity gains by controlling manufacturing, sales and distribution costs used to be Rs.40 crore, but Berry pushed that number to Rs.100 crore. Over the next year, Berry wants to focus on manufacturing, adding, “Our current model is not working.” He pegs this down to the fact that the company’s factories are spread out across multiple locations; instead, Berry wants to open factories that are closer to the market and control logistics costs. Towards this end, Rs.75 crore of the Rs.600-crore capex plan that the company is carrying out will go into establishing an R&D centre in Bengaluru. New factories are also coming up at locations such as Andhra Pradesh, Karnataka, Tamil Nadu, Assam and one in Gujarat’s Kandla export zone. “In the past, we exported our products from 16 factories in India, which was inefficient. Now, with our mega factory at the Kandla port, that problem will be addressed,” he says. Exports alone bring in 7% of the company’s revenue. On the domestic front, the plan is to reduce the number of factories over time. “Bigger facilities and those that are fragmented will be shut down. I would like to bring down the number of factories from 54 to 37,” he quips. As a consequence of setting up mega factories, the proportion of products outsourced to contract manufacturers will also go down. “We will end up producing 65% on our own, from around 50% today.”
Of course, Berry will still continue to find new ways and ideas to get people to consume his products — unavailability will just not do. On a recent drive between Gurgaon and Faridabad, he made a halt at some roadside tea stalls. To his surprise, none of them had brands from any of the major organised players. “That, to me, was a new opportunity, especially when biscuits and tea is such a natural combination,” he explains. It all boils down to distribution being a big driver for growth. From a sluggish biscuit-maker, Berry has been able to enhance Britannia’s brand equity and extract hidden profits. Of course, he has been helped by strong tailwinds in the form of softening commodity prices, but that does not take away from the big efficiencies that he has unleashed. With distribution still getting there and a brand new opportunity in food products, there is a huge runway for growth. As long as Berry remains the fiery salesman he has been through his journey at PepsiCo, Levers, Britannia can capture a huge bite of the vast potential that India’s food market offers.