Baked to Life

United Biscuits was founded in 1948 following the merger of two Scottish
family businesses — McVitie & Price and MacFarlane Lang. In 1960, United Biscuits added to its
portfolio with the acquisition of Crawford's Biscuits and MacDonald's Biscuits. In 2000 UB was
bought by Finalrealm, a consortium of investors, and reverted to private limited company status.
United Biscuits is owned jointly by private equity firms, the US-based Blackstone and Europe's
PAI.

United Biscuits (UB) is one of the world’s pre-eminent branded snacks businesses. They produce
some of the best known and loved sweet and savoury snacks, with products ranging from biscuits
and crackers to cakes and savoury snacks. Their unrivalled portfolio of brands has been meeting
consumer needs for decades and includes such favourites as McVitie’s, Jacob’s, Carr’s, McCoy’s,
Hula Hoops, McVitie’s Jaffa Cakes, KP, Mini Cheddars, go ahead!, Verkade, Sultana, BN, and
Delacre. UB holds leading or strong number two positions in its core markets of the United
Kingdom, the Netherlands, France, Belgium and Ireland. Moreover their brands and products have
global appeal. They have a rapidly growing international business unit serving consumers from
North America to the Middle East, Africa, and Australia.

UB seeks to drive sustainable performance in all it does. This includes delivering consistently on
their promise to consumers, serving their customers, developing and engaging actively with their
employees, delivering superior financial results to their owner’s year in year out, minimising their
impact on the environment and interacting constructively with the communities in which they
operate. They seem to be investing in the future whilst delivering results today.

United Biscuits, the world’s third-largest biscuit company entered the Rs10500-crore Indian biscuit
market in 2009-10. The biscuit maker initially aimed to tap the high-margin health segment of
biscuits through its McVitie's brand, which is sold in over 100 countries. The existing market
leaders in the Indian biscuit market are Parle, Britannia and ITC, and the category has strong
regional brands such as Priya Gold in the north, Cremica in the west and Dukes in the south.

United Biscuits, the $2-billion British snacks and biscuits maker, is betting on quality and
innovation to gain a quick foothold in the Indian biscuit market. The company, which entered the
Indian market with the launch of its McVitie’s brand earlier this year, will offer better products at
relevant value to take on deep-pocketed rivals like Parle, Britannia and ITC. The company believes
that this is an opportune time in India, given the disposition consumers now have for quality
products. There are three truths about this market — it is very large, has robust underlying growth
and consumers are constantly upgrading their product basket. The company will offer better
products with better ingredients, stay on top of the innovation curve and offer all this at relevant
value. Gaining a foothold in a short period in this category is not easy, but they seem to be working
on and there’s still much to do. Everyone in the organisation is on a high learning curve. They wish
to have a pan-India presence and step up distribution across the country. Their current priority is to
ensure that channel partners are pleased with the business.
The case is not descriptive of actual market conditions or plans from various institutions. It is only narrative of a hypothetical situation meant to provide students with
an opportunity to study, analyze and provide appropriate solutions against the same and learn the subject objectively.
The company also feels the brand McVitie’s, as a flagship, has broad shoulders and can carry a
strong portfolio. So there’s no immediate need to bring in another brand. Also, the costs of
building a brand demand that one has leveraged each brand completely before considering another
introduction. The master brand strategy adopted by the rest of the biscuit industry in India is
testimony to this.

UB, of course, has other brands that can be introduced at a subsequent time as they deem fit. Their
strategy is to launch products where they can add value or a distinct benefit, and an ability to make
money through these products on an ongoing basis.

Also they feel decisions on products like glucose are not standalone ones...they are governed by
strategic choices like distribution scale, cost structure, number of plants and so on. Besides, the
recent upheavals in commodity markets are a reminder to food companies to not stumble into sub-
categories, but make well thought-out strategic choices. This is an industry with well over a 100
factories. The company’s primary objective is to establish a sustainable business. Market share is
only one of the means to that end. Their existing factory can be flexed in terms of both capacity
and product technologies.

The company’s plans are being laid out at a time when a major churn seems to be happening in the
Market, especially with the giants and the competitive scenario changing from bad to worse.

Stung by a steep hike in price of key ingredients, Britannia Industries

saw its first quarter net slump 30.7% to Rs 32.8 crore this year against Rs 47.3 crore in the
corresponding period last year. The drop in profitability was attributed to jump in prices of sugar,
flour and milk — three inputs that mainly go into biscuits, cakes, bread and dairy products that
make up Britannia’s food business. The company said pricing is a dynamic decision and given the
inflationary push, it could raise prices by 5-10%, based on product category and pack size.

The company has seen costs going up by Rs 65 crore during the first quarter this year compared to
the same period last year. Out of this, sugar alone accounted for a hike in cost of about Rs 45 crore.
Despite cost pressures, there’s been no price hike in the biscuits industry, unlike most other
industries which have raised prices to get over inflationary pressures.

Britannia’s net sales, however, went up 25% to Rs 912.8 crore in the quarter against Rs 731.24
crore last year. In volume terms, sales grew 20% during the quarter under review. The real
challenge for the industry is continuing inflation in key commodities like flour and sugar that
adversely impacts margin. This has led to a squeeze on the industry’s profit pool. In an intensely
competitive market, the players are forced to strip down costs.

Britannia’s profitability suffered during the June 2010 quarter even though its topline continued to
grow in double digits. This reflects the difficulty of the bakery and dairy product maker in passing
on the impact of higher raw material costs to its consumers. Some other food companies such as
Nestle and GSK Consumer Health Care have reported a similar trend earlier.

A stiff competition has forced food companies in the FMCG space to absorb much of the impact of
higher food inflation during the June quarter. In the case of Britannia, new players such as Unibic
The case is not descriptive of actual market conditions or plans from various institutions. It is only narrative of a hypothetical situation meant to provide students with
an opportunity to study, analyze and provide appropriate solutions against the same and learn the subject objectively.
and McVitie’s are competing at the premium end, and ITC and Parle remain aggressive at the
lower end. This has weakened Britannia’s pricing power in its category. Its June quarter
performance is reflective of this.

Britannia’s revenue rose by 25% year-on-year during the June quarter. But the impressive growth
is more a function of the low base a year ago. Furthermore, despite 20% volume growth, net profit
was disappointingly down by 30% due to higher input costs, higher advertisement & promotion
spend and much higher interest expense.

It has become tougher to protect and grow market share for the FMCG biggies such as Nestle,
HUL and Britannia, given the intensifying competition from the new domestic as well as
international entrants. Most of these companies have chosen to keep product prices stable. Another
strategy adopted by them is introducing new products to maintain their market share.

At the other end Britannia could benefit on account of some change in factors relevant to the
market. First, the trend in prices of raw materials including flour, sugar and milk. Of these, sugar
and milk prices after inflating so much in the past few quarters are easing out. This may take away
some pressure on margins. Another factor is the company’s strategy to focus on new differentiated
products that would attract premium pricing. Its future performance thus largely depends upon the
success of this strategy and the inflation scenario.

Since Britannia’s products command a premium of 10-12% in the market, the company plans to
focus more on differentiated products like Tiger Choco, a milk based drink and ActiMind, a health
drink for children. This strategy would also allow it to raise prices in the face of competition.

To check margins, the company has also strengthened its pillar brands. Britannia’s top five brands
include Good Day, Tiger, Marie, Treat and 50:50. Britannia has exclusive ownership of the Tiger
logo following settlement between the company, Generale Biscuits and Kraft Foods Singapore in
July 2009. The company has also lined up a Rs.80 Cr expansion Plan, aimed at setting up new
plants and expand current capacity by 20% across its portfolio of Biscuits, Cakes, Rusks and
Breads.

More consumers seem to be munching on Parle biscuits while

sipping on their hot cuppa, which is probably why the company is said to have toppled Britannia
Industries' numero uno position to become the largest selling biscuit company in India. Last year
Parle Products, which makes the ubiquitous ‘Parle-G' glucose biscuits, had attained volume
leadership in the market. Now, with a total turnover of around Rs 4,000 crore coming from
biscuits, Parle Products has emerged as the clear market leader, with a difference of almost Rs
1,000 crore. Britannia Industries reported a turnover of Rs 3,400 crore for the financial year 2009-
10, with biscuits contributing around Rs 3,000 crore.

The Rs 5,000-crore Parle Products, which also makes confectionery products, draws 80% of its
turnover from biscuits. Although Britannia Industries has disputed the fact that Parle has become
the market leader, the cookie seems to be crumbling a bit for the company. Going by the turnover
numbers, Parle leads with a margin of Rs 1,000 crore over Britannia. Parle Products' annual share
(moving average total) in biscuits stands at around 45% as against Britannia's 38%. Historically,
The case is not descriptive of actual market conditions or plans from various institutions. It is only narrative of a hypothetical situation meant to provide students with
an opportunity to study, analyze and provide appropriate solutions against the same and learn the subject objectively.
the biscuit pie was made up by one-third of Britannia, one-third of Parle Products and one-third of
the balance share where other smaller brands lost or gained share.

Britannia maintains that it continues to lead the biscuit market in all categories except glucose,
where it lost some share about a year ago and has partly recovered that. However, glucose as a
category within the overall biscuit market has declined. Britannia has a large and diverse portfolio

ranging from health & nutrition (e.g. NutriChoice Digestive, NutriChoice 5 Grain, etc.) on the one
hand to delightful & indulgent products on the other (e.g. GoodDay, Treat, Bourbon, etc.), while
Parle largely dominates the discounted glucose segment, whose share is declining in the overall
biscuit market. Britannia has also stated that its growth rate is 3-4%.currently in the Biscuits
Segment. Britannia also maintains that their strategy is not dictated by competitors. Their portfolio
always was and will continue to be more diversified than the competitor’s portfolio. Market share
is not the yardstick they would use to beat a competitor.

Interestingly, in the Rs.10500 crore biscuit market, despite competition from the likes of Priya
gold, ITC(Sunfeast) and a host of other small players, the bulk of the organized market has always
been dominated by the two heavyweights-Parle Products and Britannia-controlling around 70% of
the market.

Parles’s efforts to increase its rural penetration and its marketing strategies targeting urban
consumers has resulted in its turnover growth over the years.

Analyze and Answer:

i) Can UB cut across the Indian market especially in the High value oriented Biscuits segment in a big
way? Explain the competitive scenario for its product range and the strengths which UB can bring to the
fore.

ii) For ages many foreign brands have not been able to make a difference in the Industry due to the
peculiar competitive characteristics in the Indian Industry. Moreover the brands are not very familiar to the
Indian consumers and they lack to reflect the taste of the Indian consumer. Foreign brands seem to be low on
sugar and taste (which reflects consumer tastes in the markets of origin) as compared to Products from Indian
Firms like Parle or Britannia. This may results in major product modifications that need to be carried out
with various international brands. Provide a suitable Product strategy for UB. Mention the Product lines you
wish to have for UB.

iii) It could be easy for the major players in India to imitate UB products being launched at the upper
end of the market. How should UB differentiate its products from competition to leverage and sustain for a
long time.

iv) What changes do you anticipate in the near future relevant to Macro environment of the Biscuits
Market and explain the Benefits/Threats to UB as a resultant of the same.

v) How should UB increase its distribution network in India?

Use additional secondary data available on the industry for your analysis

The case is not descriptive of actual market conditions or plans from various institutions. It is only narrative of a hypothetical situation meant to provide students with
an opportunity to study, analyze and provide appropriate solutions against the same and learn the subject objectively.