Has Biscuit Manufacturer Britannia

Industries Found a Fresh Recipe

for Growth?
Published: January 09, 2009 in India Knowledge@Wharton

For more than a decade, biscuit manufacturer Britannia Industries has called on
consumers to "Eat Healthy, Think Better." Now, emerging from a period of internal
crisis and preparing to address a larger slice of India's growing food space, the 90-
year-old Bangalore-based company is taking on a new slogan: Zindagi mein Life.

Translated literally from Hindi, the new slogan means "adding life to life" -- or, as
managing director Vinita Bali puts it, "adding enjoyable vitality to life."

According to Bali, who has been at Britannia's helm since 2005, "Over the past few
years, as we looked at what we stand for and what we could stand for, we felt that if
our promise to consumers [is to] make products that are not just enjoyable but also
good for them, then we need to make that promise come alive through our
products."

This is perhaps best exemplified by Britannia's decision to remove 8,500 tons of

trans fat from its biscuits in the last year, making them completely trans fat-free.
The company was under no regulatory compulsion to do so; in fact, it is the only
biscuit manufacturer in India to have taken such a step. Over the last few years,
Britannia has also fortified many of its products with vitamins and micronutrients
such as iron. Currently, 50% of its products are fortified.

Positioning the Britannia brand as both enjoyable and healthy is core to Bali's growth
strategy. She stresses that Britannia is not in the "health food" business, but rather
"in the business of delight and enjoyment," competing not only with other biscuits
but also with savories, chocolates and other snacks.

By marketing itself as a healthier alternative, however, Britannia seeks to sharply

differentiate itself from other brands -- and that move has paid off. Last September,
Microsoft founder and philanthropist Bill Gates included Britannia's fortified snacks in
a list of eight examples of 'creative capitalism' published in Time magazine. The
company was also recently recruited to participate in former U.S. President Bill
Clinton's campaign against childhood malnutrition through the high-profile Clinton
Global Initiative.
Hungry for More

The new positioning is also intended to strengthen the mother brand itself. With the
introduction of the "Eat Healthy, Think Better" campaign in 1997, Britannia focused
on building its individual brands, such as Tiger glucose biscuits, Good Day cookies
and Treat cream biscuits. That was fine, as biscuits accounted for the bulk of the
company's revenues. (For the year ended March 2008, biscuits brought in about
90% of Britannia's net sales of $650 million.)

But now Britannia wants to broaden its menu. In addition to growing its core biscuit
business, it wants to significantly expand its small businesses including dairy, bread,
cake and rusk (known as zwieback in the U.S.). The dairy business, which Britannia
entered in 1997 and spun off as a joint venture with New Zealand's Fonterra Group
in 2002, has revenues of barely $36 million and has yet to become profitable.
Britannia has dabbled with bread and cake for more than two decades and entered
the rusk market a few years ago. These three businesses together take in just $68
million.

More important, Britannia looks to explore other opportunities within the growing
food space. According to a November 2008 report by the Federation of Indian
Chambers of Commerce and Industry and management consulting firm Technopak
Advisors, the Indian food industry is estimated to have been at $200 billion in 2006-
07 and is expected to grow to $300 billion by 2015. The report considers the food
industry to include fruits and vegetables, dairy products, marine and fish, meat and
poultry, breads and bakery, confectionary and packaged foods, and alcoholic and
non-alcoholic beverages.

"Our vision is to become a larger player in the food space, and as we get into newer
products and newer categories, their strength will be derived from the Britannia
mother brand," says Durgesh Mehta, who was Britannia's chief financial officer when
he was interviewed for this article. He has since moved on to become CFO of
Bombay Dyeing, which, like Britannia, is a Wadia Group company.

What new areas might Britannia enter? Company officials aren't saying, though
speculation includes breakfast items and ready-to-cook and ready-to-eat products.
Bali says that Britannia will not look at staples such as rice, wheat flour and sugar.
"We will pursue profitable growth opportunities where we can create propositions
that are relevant and differentiated from a consumer point of view," she notes.

Adds Neeraj Chandra, Britannia's vice president and chief operating officer: "We are
looking at categories that gel with our principles of enjoyable and healthy food. We
want to participate in as many consumption moments as possible in the food space
through both leveraging our current products better and through different kinds of
products."

Industry players and analysts see Britannia's move as both smart and inevitable.
"Britannia certainly has the capability to be a larger player in food," says Harish
Bijoor, chief executive officer of Harish Bijoor Consults and a visiting professor at the
Hyderabad-based Indian School of Business. "The brand equity of Britannia can be as
elastic or as inelastic as its vision is for the Indian market."

Nikhil Sen, who was with Britannia for more than 25 years, including a brief stint as
chief operating officer, adds: "Redefining its boundaries to become a larger player in
food is a great strategy for Britannia, and it certainly has the capability to do so."
Sen is currently managing director of Unibic Biscuits India, the Indian arm of the
Australian biscuit company.

Both Sen and Bijoor add a note of caution. "Britannia has been very good at
developing its current business, but it has not come out with any innovations in
recent years," Sen says. "There has not been a single new product in the past few
years which has been pioneering for the category. There has been no new energy, no
'wow' factor. Britannia needs to innovate."

Adds Bijoor: "Dairy and biscuits is still a wide-open arena, and there is [a lot of
growth] in this space itself. Britannia is in an enviable position to leverage [these]
opportunities, but it needs to be far more aggressive." Bijoor is also not convinced
about Britannia's positioning as health-cum-enjoyment: According to his research,
taste and health are mutually exclusive in the Indian context.

B. P. Agarwal, managing director of Surya Food & Agro, which makes the Priya Gold
regional brand of biscuits, says that while Britannia undoubtedly remains a market
leader, much of its strength is derived from past glory and its strong consumer
equity. "The new products that Britannia has been introducing in recent times have
been more by way of tweaking the existing portfolio. It has been launching variants
with new packaging, but there is nothing dramatically new," Agarwal says. Recent
launches including Chutkule, a snack product, and Fruit Rollz -- both of which
Britannia has discontinued -- failed to excite consumers, he says.

A Period of Turmoil

Any lack of innovation -- and Britannia insists that it is constantly innovating -- can
be traced to the company's internal turmoil a few years ago. Sunil Alagh, who led
Britannia as managing director and chief executive officer for more than 10 years,
was fired in 2003 amid allegations of financial mismanagement. A number of senior
executives also left. Sen was given the reins, and then in January 2005 Bali was
brought in. She put an almost entirely new management team in place.

The last few years have also been marked by battles between Britannia's two major
stakeholders, the Wadia Group and French Group Danone, over issues including
alleged infringement by Danone of Britannia's Tiger brand. With Danone having sold
its biscuits business to U.S.-based Kraft Foods last year, it is expected to exit from
Britannia.

Even as Britannia was caught up in its internal crisis, the external landscape was fast
changing. For a long time, only Parle Products was a strong competitor to Britannia
in the national biscuit market. Other competitors were small regional players. While
Parle focused primarily on the low-end glucose biscuit segment -- its Parle G brand is
one of the world's best-selling biscuits -- Britannia focused on the premium segment.
With nearly equal shares of a total greater than 80% of market value, they coexisted
peacefully.

In 2003, however, tobacco giant ITC entered their turf as part of its diversification
strategy. Using its financial muscle -- ITC's 2007-08 revenues were $5.5 billion --
and massive distribution network, it quickly succeeded in emerging as a strong third
player. While privately held Parle claims that it has a 40% market share, market
research firm ACNielsen says Britannia and Parle both have around 33% of the
market, while ITC has close to 9%.

"Britannia's story is one of change of management and change of management

styles," says Bijoor. "In the bargain, what suffered was the back-end research and
development and the potential for massive growth at a time when India's economy
was booming. Britannia was also completely unprepared internally for the irrational
competition from ITC." Bijoor adds that it is only now, with Bali at the helm for the
last four years, that a certain amount of stability has taken hold and that Britannia's
momentum is building again.

Praveen Kulkarni, general manager of marketing for Parle Products, agrees.

"Britannia is definitely getting more aggressive in the market and seems to be
getting back into the game now."

Britannia's financials bear this out. In the last two years, Britannia has been among
the three fastest-growing fast-moving consumable goods (FMCG) companies in
India. In the second quarter of this fiscal year, Britannia topped the list with 27.3%
growth.

Ingredients for Growth

So what are Bali's main ingredients for growth? Investments in people, brands and
infrastructure, improved efficiencies and cost reduction, and new choices for
consumers.

For instance, the company has been investing significantly in higher and better
quality of human resources both at the front end and at the back end. It has sharply
segmented its go-to-market strategy and, unlike an earlier focus on simply
increasing the number of outlets it covered, Britannia now has separate teams for
general sales, modern trade, institutions, and semi-urban and rural markets. It is
building strong capabilities in each of these segments.

Britannia has also been working with an international consulting agency for building
capabilities in shopper understanding as opposed to consumer understanding. Says
Chandra: "These are some finer distinctions we would not even have thought of
three years ago."

In 2008, Britannia divided its product portfolio into two distinct categories: "health
and wellness" and "delight and lifestyle." Products such as Tiger glucose and
NutriChoice biscuits fall under the former category, while Good Day and Treat fall
under the latter. Each category is headed by a senior executive responsible for
outlining distinct growth strategies.

Other initiatives include introducing personal consumption packs to attract youth and
people on the move, adding transit points such as bus stops and small roadside
shops to its distribution network, and addressing workers in the business process
outsourcing industry as a potential new market.

Meanwhile, Britannia has doubled its ad spending in the last three years. It is also
working to increase trade marketing visibility and, for the first time ever, has signed
on with a trade marketing agency. According to Mehta, Britannia plans to increase
advertising and marketing spending to 10% to 12% of sales over the next few years
from a current 7%.

On the infrastructure front, Britannia has added 200,000 tons of annual capacity, an
increase of about 60%. It has also devised a long-term distributed manufacturing
strategy, put in place a continuous replenishment supply efficiency system, and
strengthened its supply chain management significantly. According to Rajesh Lal,
vice president and chief technology officer: "The stocks at our distributors are now
replenished within 24 hours, and in the past three years we have increased the
availability of our [stock-keeping units] from 60% to 90% across the country." Lal
adds that cost reductions over the last three years have saved the company $30
million.
Bali is looking to leverage all these new pieces for maximum competitive advantage.
Sources inside Britannia say revenue targets are $1.25 billion by 2010 and $3 billion
by 2015. While Bali won't commit to any numbers, her hunger clearly is to be the
best. "There is a huge opportunity out there in the market and it is up for grabs,"
she says. "What we make of it depends on our ability to commercialize the
opportunity. We want to be among the three fastest-growing FMCG companies in the
country and to grow profitably."