Britannia Industries Limited Is One Leading Bakers Marketing Essay

Britannia Industries Limited Is One Leading Bakers Marketing Essay Britannia Industries Limited is one of the leading players in the bakery segment in India. Its product portfolio includes various types of biscuits, breads and cakes. The company primarily operates in India. It is headquartered in Kolkata, India and employed about 2,358 people as on March 2008. The company recorded revenues of INR 26,177 million during the fiscal year ended March 2008, an increase of 13% over 2007. Top line of Britannia was driven by price increases by way of reduction in pack sizes and extension of excise exemption to biscuits with maximum retail price (MRP) below INR 100 per kilogram from INR 50 per kilogram earlier. The operating profit of the company was INR 2,723 million during fiscal year 2008, an increase of 80% compared with 2007. The PAT was INR 1,910 million in fiscal year 2008, an increase of 77.5% compared with 2007. BUSINESS DESCRIPTION Britannia Industries Limited (Britannia) is engaged in producing and distributing bakery products including a variety of biscuits, breads, rusks, and cakes. The Wadia group of India along with Groupe Danone of France, are equal shareholders in ABIL, the UK which is a major shareholder in Britannia. The company operates through three broad product categories: biscuit and high protein food, bread and rusk, and cake. The biscuit products are marketed under the following brands: Tiger, Good Day, 50 50, Marie Gold, Treat, Milk Bikis, Nutri Choice, Time Pass, Pure Magic, Little Hearts, Nice Time, Vita Marie Gold and Greetings. Bread products are sold under the Premium Bakes, white sandwich bread brand. Cake products are sold under the Premium Bakes, Cakes and Rusks brands. The company also offers Cup Cakes in its cakes category. Britannias dairy operations are conducted through its subsidiary, Britannia New Zealand Foods Company Private Limited (BNZF). BNZF is a joint venture between Britannia and Fonterra Co-operative Group of New Zealand. The company exports its products to the US, Ghana, Seychelles, Singapore, Oman, Saudi Arabia, United Arab Emirates, Qatar, Bahrain and Kuwait. HISTORY Britannia was established with an initial investment of INR295 in Kolkata in 1892. The operations of the company were mechanized with the advent of electricity in 1910. The company started using gas ovens in 1921. Britannia Biscuit Company took over biscuit distribution from Parrys in 1975. In 1978 the company became a publicly listed company. In the following year, the company was renamed as Britannia Industries Limited (Britannia). The companys executive office was relocated to Bangalore in 1989. In 1993 Wadia group acquired stake in ABIL, UK and became an equal partner with Groupe Danone in Britannia. Britannia introduced its new corporate identity Eat Healthy, Think Better; and launched Tiger Cashew Badam and Cheeker brands of biscuits in 1997. In 1998, the company introduced Milk Bikis and Nutri Choice brands; and Etnic Snacking. In 1999, the company issued bonus shares in the ratio of 1:2. During the same year, the company also introduced cheeselets. The company introduced biscuit brands GD Choco, Time Pass and Vita Marie Gold in 2000; Rourbon Pocket Packs, Maska Chaska and Vita Marie Gold in 2001. Britannia introduced many brands of biscuits in 2002 which include Time Pass Classic Salted, Jim Jam Pocket Packs, Chai Biskoot, Tiger Cream, GD Ginger Nut and Pure Magic. The company launched a joint venture with Fonterra, a dairy company; and started Britannia New Zealand Foods in 2002. The company launched, Treat Duet, a biscuit brand in 2003. In the following year, Britannias Good Day biscuit added Choconut, a new variety to its range of biscuits. The rebirth of Tiger biscuit was seen in 2005, with the tag line Swasth Khao, Tiger Ban Jao. In the same year Britannia launched Greetings range of premium assorted gift packs; and Britannia 50-50 Pepper Chakkar. In the same year, the company started its new plant in Uttaranchal. In July 2006, Britannia acquired Cafe Coffee Days 50% stake in Daily Bread, a Bangalore-based high-end food re tailer. In March 2007, Britannia formed a joint venture with the Khimji Ramdas Group, one of the largest business conglomerates in the Middle East. Britannia and its associates acquired 70% beneficial stake in Dubai-based Strategic Foods International and Oman-based Al Sallan Food Industries Co SAOG. In January 2008, Britannia was asked by the Calcutta High Court to pay back the INR12 crore, which it withdrew from the companys pension fund. MAJOR PRODUCTS AND SERVICES Britannia Industries Limited (Britannia) is a producer and distributor of bakery and dairy products. It manufactures, distributes and sells a range of branded products including: List of products: Biscuits Bread Rusk Cakes Cheese Butter Milk List of selected brands: 50:50 Deluca Good Day Little Hearts Milk Bikis MarieGold Maska Chaska NutriChoice Pure Magic Treat Tiger REVENUE ANALYSIS Britannia recorded revenues of INR 26,177 million during the fiscal year ended March 2008, an increase of 13% over 2007. The company generates revenues through three business divisions: biscuits and high protein foods (89% of the total revenues during fiscal year 2008), bread and rusk (7.4%), and cake (2.9%). Revenue by division During the fiscal year 2007, the biscuits and high protein food division recorded revenues of INR 23,299 million, an increase of 11.4% over 2007. The bread and rusk division recorded revenues of INR 1,956 million in fiscal year 2008, an increase of 36.3% over 2007. The cake division recorded revenues of INR 769 million in fiscal year 2008, an increase of 23.2% over 2007. The others (including scrap sales) division recorded revenues of INR 144 million in fiscal year 2008, a decrease of 28% over 2007. SWOT ANALYSIS Britannia is a producer and distributor of bread, snacks and dairy products. The company has a portfolio of top selling food brands. Britannia produces and distributes premium brands such as 50:50, Good Day, Little Hearts, Milk Bikis, MarieGold, Maska Chaska, NutriChoice, Pure Magic, Treat, and Tiger. An extensive portfolio of global brands facilitates customer recall and enhances Britannias market penetration capabilities. However, an impending litigation disputing the trademark of Britannias biscuit brand Tiger, with Danone, could adversely impact the companys brand image and its international expansion plans. Strengths Weaknesses Strong brand name Launch of innovative products and brand extensions Growth in operating segments High dependence on Indian market Fluctuating cash from operations Opportunities Threats Inorganic growth Strategic alliances Growing demand for health and convenience products Litigations Inflationary dairy product prices Outbreak of animal diseases Strengths Strong brand name The company has a strong portfolio of top selling food brands. Britannia produces and distributes premium brands such as 50:50, Good Day, Little Hearts, Milk Bikis, MarieGold, Maska Chaska, NutriChoice, Pure Magic, Treat, and Tiger. Each of the companys six pillar brands (Good Day, Tiger, 50:50, Treat, Milk Bikis, and Marie Gold) generate sales in excess of INR1 billion. Further, the company is entering new product lines like snacking and health products and thus capturing a larger market share. In 2007, most of the companys brands secured double digit growth rate. Additionally, Britannia was ranked second among FMCG companies in the Business Worlds Most Respected Company Survey 2006. With a wide portfolio of brands and choice of product category, the company is able to differentiate itself in the market, nurture customer loyalty, and reduce its business risk. As a dairy product company, Britannia enjoys strong brand equity, and its extensive portfolio of global brands has helped it to expand its market presence and visibility. A strong brand portfolio not only facilitates customer recall but also enhances Britannias market penetration opportunities. Launch of innovative products and brand extensions The company has a strong orientation towards product innovation. In 2007, the company demonstrated its ability to innovate and extend its brands and products. Britannia launched many innovative products in 2007. Through an innovative product lineup, the company plans to strengthen and sharpen its brands and transform them from existing formats and conventional archetypes. In this context, the company launched cream and coconut varieties in its Tiger brand range. Further, the Chota Tiger, which is an extension of Tiger brand, draws on the kids snacking habit presenting biscuits as small, pop-able, snacks in a pouch pack. Similarly, the company also launched added Fruit Rollz under its Treat brand. Further, the company launched 50:50 Chutkule and NutriChoice Digestive and SugarOut. NutriChoice SugarOut is the first biscuit without added sugar, in the Indian market. Strong product innovation skills enable the company to stay ahead of the competition and create an edge in the market. Growth in operating segments Britannias operating segments has shown strong financial performance since 2005, which is evident from its revenue growth. Biscuit and high protein food segment revenue increased from INR14,926.9 million (approximately $330.8 million) in 2005 to INR20,910.8 million (approximately $463.4 million) in 2007, this representing compounded annual growth rate CAGR (2005-2007) of 18%. The bread and rusk segment also recorded increase in revenue from INR788.2 million (approximately $17.5 million) in 2005 to INR1,435.7 million (approximately $31.8 million) in 2007, this representing CAGR(2005-2007) growth of 35%. Further, the cake segment also recorded increase in revenue from INR355.7 million (approximately $7.9 million) in 2005 to INR624 million (approximately $13.8 million) in 2007, this representing CAGR(2005-2007) growth of 35%. Strong performance by the companys operating segment enhances its financial standing and strengthens its position against its competitors. Weaknesses High dependence on Indian market Though Britannia has made forays into other international markets, it is still dependent on the Indian market for a majority of its revenues. Though the company exports its products to many countries, the revenue contribution of regions other than India is too low to confer any significant geographical diversification benefit on the company. High dependence on India makes Britannia vulnerable to the market conditions in this region. Fluctuating cash from operations The company has not been able to generate consistent cash from its operations in recent times. The company has registered fluctuations in its cash from operations, registering a decline in every alternate year since 2004. Cash from operations decreased from INR1,961 million (approximately $43 million) in 2005 to INR649 million (approximately $14 million) in 2006. Again in 2007, it increased to INR871 million (approximately $19 million). Fluctuating cash from operation could upset the companys expansion plans. Opportunities Inorganic growth Britannia is aggressively pursuing inorganic growth model. In March 2007, Britannia concluded two acquisitions, including its first ever overseas partnership. In March 2007, Britannia formed a joint venture with the Khimji Ramdas Group, one of the largest business conglomerates in the Middle East. Britannia and its associates acquired 70% beneficial stake in Dubai-based Strategic Foods International LLC and Oman-based Al Sallan Food Industries Co SAOG. The two companies are major regional players in the biscuits and cookies segments in the Gulf Corporation Council (GCC) markets. Both the companies export to more than 40 countries across the globe including Africa, Australia and Japan, thereby giving Britannia access to many new markets. These two acquisitions are expected to allow Britannias portfolio to extend to those countries in which they have a presence. The joint venture could provide Britannia an opportunity to grow its international footprint by leveraging on the complementa ry strengths of the two partners. Strategic alliances Britannia entered into strategic alliance with Daily Bread Pvt. Ltd. (Daily Bread) to participate in premium bread and allied products market in India. In July 2006, Britannia acquired a strategic 50% stake in Daily Bread, a Bangalore-based company engaged in the manufacturing and retailing of premium breads, cakes, and ready-to-eat snacks. Daily Bread operates in both institutional and retail segments, and offers a wide range of international quality bakery products, including 50 varieties of specialty breads. Post-acquisition, Britannia holds the brand Deluca in India. Daily Breads business model includes a chain of own and franchised retail outlets, and catering to institutional customers. Daily Bread operates seven outlets in Bangalore and since its acquisition by Britannia; two large outlets have been added. Britannia is keen to scale up the outlet chain to 30-40 cities beginning Fiscal 2008. This acquisition marks Britannias entry in the high-end, freshly baked gourmet food. Th is alliance will help Britannia to scale up the bakery business in select markets with a range of gourmet products sold under its brand names. Growing demand for health and convenience products Consumers worldwide have become more health conscious in recent years. Increasing number of consumers are opting for natural, fat-free and healthy food products. Food items containing trans-fat are losing market share as they are linked to cardiovascular diseases. The primary drivers for this trend are changing lifestyles, late marriages, increase in single-parent households, increase in number of homes with two working parents, and increased working hours. Consumer expenditure on away-from-home dining is rising. According to the US Economic Research Service, spending on food-away-from-home is expected to increase by almost 10% per capita until 2025. The trend towards low fat, low sugar and low carbohydrate foods and drinks continues to drive the market. Britannia offers a range of low-fat and sugar free products. With a strong emphasis on healthy foods, the company is likely to benefit from the increasing health food market. The global nutritional market exhibited strong growth in 2 006, estimated at E127 billion ($159 billion), with half of this represented by the US market. The company is well positioned to exploit its focus on health and convenience platform to drive its future growth. Threats Litigations Britannia and Groupe Danone (Danone), a French dairy and beverages giant, are engaged in intellectual property rights battle, since many years. Wadia group and Danone have an equal stake in Associated Biscuits International Holdings (ABIH), which is a major shareholder in Britannia. Both the companies are disputing over the trademark of Britannias biscuit brand, Tiger. Britannia has accused Danone of registering the Tiger Trademark globally without its consent. Danone has already registered Tiger brand in nearly 35 countries and has applied for registration of the Tiger trademark in over 70 countries. In 2006, Britannia sued Danone in a Singapore court, seeking a speedy redressal of the Tiger brand issue. Danone has already registered Tiger trademark in Singapore, which will expire in November 2009. Britannia submitted its trademark application for Tiger in Singapore only in April 2007, which is still pending. An arbitration case between the two parties is also pending at the Bombay High Court. This long impending litigation (with Danone) could adversely impact Britannias brand equity and its international expansion plans. Inflationary dairy product prices Britannia, being a diary company, is exposed to general business risks faced by the global dairy market. Britannia is vulnerable to price fluctuations in the world market for raw materials such as flour, soya, maize and grain. In 2007, the industry witnessed an inordinate and simultaneous increase of approximately 20% 25% in the market prices of all key commodities like flour, refined palm oil, skimmed milk powder, etc. The companys top line growth of 28.4% was eroded by inflation in input costs, resulting in a gross margin decline of 6.7%.The global dairy market is marked by sharp fluctuations in the price of dairy products. Furthermore, sales prices are fixed with customers for relatively long periods in a number of markets, whereas the purchase prices of milk are subject to short-term fluctuations. In order to limit these risks, Britannia should try to minimize its operating costs by efficiently utilizing existing resources. Further increase in input cost could dampen the company s gross margin, which could result in declining top-line growth. Outbreak of animal diseases Britannia, as a diary product company, is dependent on constant supply and quality of the raw materials like milk. Any outbreak of animal diseases (especially Foot and Mouth Disease caused by a virus which is one of the most contagious and feared diseases), can cause heavy loss in susceptible cloven-hoofed animals world over. Britannia, which markets all dairy-based products like butter, cheese, and biscuits to different countries, may get affected by milk supplies and the production and sale of dairy products in case of diseases outbreak thus affecting its revenues. TOP COMPETITORS The following companies are the major competitors of Britannia Industries Ltd. Nestle India Ltd ITC Corporation Ltd. Parle Products Pvt. Ltd.