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Fonterra Co-Operative, would operate its current dairy business which includes
co-packers, marketing and distribution of milk and milk products in the country.
Britannia planned to source most of the products from New Zealand, which they
would market in India. Dairy products contribute close to 10 per cent to
Britannia's revenue.
Britannia was among the few FMCG stocks that bucked the trend in a dismal
market last quarter. A recovery in the FMCG sector is seen early this year on the
back of a bumper rabi crop February harvest.
Britannia's successful foray into the mass market for biscuits through `Tiger'
brand and into the dairy business gave volumes for Britannia when its traditional
businesses — biscuits and bread — showed signs of plateauing. With low
penetration of dairy products and snack foods, they offer significant potential for
growth. Therefore, unlike FMCG companies operating in markets for mature
products such as soaps or detergents, there appears to be considerable room for
growth for Britannia.
The new alliance
With revenues of $3.5 billion in 2000, New Zealand Dairy is among the ten
biggest dairy companies in the world. Unlike Britannia's present co-promoter
Danone, which is essentially a dairy product company, New Zealand Dairy is an
integrated dairy company. Thus, while Danone markets dairy products (mainly
fresh dairy products such as desserts, fresh cheese and yoghurt), New Zealand
Dairy is present in practically every part of the chain, from procurement of milk
to value-added products such as cheese and buttermilk.
Operated on the co-operative model much like the NDDB, New Zealand Dairy,
thus, has access to technology in every stage of milk production. This could
prove valuable for Britannia in competing with the formidable Amul. Given
Britannia's recent forays into ghee and liquid milk, this could be invaluable.
But the bad news for Britannia shareholders could lie in the manner in which the
deal is structured. At the time of the announcement, Britannia stated that it
would enter into a new joint venture with New Zealand Dairy to operate the
dairy business.
Given that only an in-principle agreement is in place, the final shape of the deal
will probably emerge later. But the details available now are not very reassuring.
According to the proposal cleared by the FIPB, the proposed joint venture is to
have a capital base of Rs 225 crore, with Britannia and New Zealand Dairy
holding 49 per cent each. The crucial 2 per cent is proposed to be given to a
strategic investor, to be decided at a later date. Britannia has also tentatively
announced that the current dairy business, with the marketing and distribution
of products, will be transferred and run by the joint venture.
Britannia will have to shell out around Rs 110 crore (roughly half its current
capital employed) for its equity stake in the joint venture. Its shareholders would
stand to reap a return from this joint venture, only if and when it declares any
dividends.
The near-term impact apart, the long-term implications of this move are also
significant. Over the past couple of years, Britannia's dairy portfolio has far
outpaced its traditional biscuits and breads range, growing at 47 per cent in
2000-01 and by 30 per cent in 2001-02. A transfer of the dairy business into a
separate company could deprive Britannia of the growth momentum that the
dairy business brings to its table.
There could also be other operational issues that need to be sorted out. For one,
the joint venture with Fonterra could also mark Britannia's transition from a
dairy product marketing company to one which is invested in the dairy business
at the grassroots levels.
Until now, Britannia has outsourced the bulk of its dairy products from Dynamix
Dairy, in which it holds an equity stake. This has given Britannia considerable
flexibility in changing its product mix, with very little exposure to the inherent
risks of an agriculture-oriented business such as dairying.
But the joint venture with Fonterra could change this. The FIPB approval to the
joint venture is based on the condition that the company would set up
manufacturing facilities of its own and not indulge in `trading' of any product,
save at the wholesale level. This could force a gradual shift in Britannia's profile
from a company merely marketing dairy products to one that operates its own
manufacturing facilities. While this could bring cost savings and create a larger
product portfolio, it could also entail substantial capital investments in the near
term, apart from adding a measure of risk to Britannia's operational profile.
Which ever way, if the joint venture with Fonterra pans out, the recent move by
Groupe Danone to set up its own wholly-owned subsidiary in India is a definite
damper for Britannia. Last week, Groupe Danone received the FIPB clearance to
make and sell dairy products. Since Britannia has never depended heavily on
Danone for its product portfolio, it may not directly lose out because of this
move. However, the setting up of the wholly-owned subsidiary could result in the
emergence of an entirely new, strong, multinational competitor to Britannia in
the dairy business. With MNCs such as Nestle India and Dabon already in the
market, along with the well-entrenched NDDB, Britannia can certainly do without
yet another competitor fighting for a foothold in the market.
After the recent slump, the Britannia Industries stock now trades at a price-
earnings multiple of 23 times its latest earnings.
This is definitely low compared to Britannia's FMCG peers. It is early days yet to
jump to conclusions about the prospects for Britannia's earnings, based on the
above events. However, the uncertainty arising out of developments could act as
a damper to the valuations of the Britannia Industries stock for now. Investors
uncomfortable with the enhanced risk profile can contemplate trimming
exposures to the stock.
Britannia is the largest bakery products manufacturer in India. The company is the leader in the
organised biscuits segment with a 38% market share (value-terms). It also manufactures bread
and cakes. Currently, Britannia is focusing on expanding its business to dairy products like
cheese, butter, ghee and dairy whitener.
Groupe Danone, the 3rd largest food processing company in the world and Nusli Wadia of
Bombay Dyeing hold a 22% equity stake each in the company through Associated Biscuits UK in
which both are equal partners. Danone is actively supporting Britannia through its technological
expertise in new product development.
Britannia is an innovative marketer and has always been driven to expand its market. It has
redone its whole image to target the health and nourishment conscious Indian consumer.
Anticipating deregulation of the biscuit segment, Britannia consistently invested in expanding and
upgrading its capacities since FY96. It has invested over Rs 2 bn in setting up new packaging
lines and expanding its marketing and distribution reach. Earlier, Britannia had been forced to
outsource 50% of its biscuit requirement because of the aforesaid reservation policy.
Its competitors in the biscuit segment are Parle (30% market share), Bakeman’s (8%), Ampro
(6%) and Kwality (4%). Britannia is the market leader in value terms, but Parle controls 44% of
the total volume compared to Britannia’s 34%. However, Britannia recently bought over Kwality’s
brands thus indirectly increasing its market share.
Britannia had a weak presence in the largest biscuits segment – Glucose (36% of total biscuit
market), aimed at the lower end of consumers. It launched Tiger in this segment during 1997. It
has already become largest selling biscuit brand within Britannia's biscuit portfolio. However, the
current downtrend has hit growth rates of this popular brand. Infact, in the month of July 2001, the
Tiger volumes showed single digit growth of around 2.2% YoY.
Bread contributes about 5% to Britannia’s topline (FY01). The Indian bread market is largely
dominated by the unorganised sector. Besides Britannia, Modern Foods is the only other national
player in the branded segment. Despite this, Britannia has given this segment a low priority
because bread is a low margin business growing at a meager 3-4% per annum, but is focusing on
the premium bread segment, which has relatively higher margins.
Dairy products are the new focus area for Britannia. In FY98 it contributed a mere 4.5% turnover.
However, by FY01 this contribution has reached a sizeable 10% of turnover.
Britannia’s decision to make a strategic foray in dairy business was only natural, as Danone (one
of its promoters) is a world leader in the dairy business. Besides, Amul - the market leader had a
virtual monopoly in the branded butter and cheese segment. It had been finding it difficult to keep
pace with demand, hence the opportunity for Britannia.
But despite its attractive business strategy and strengths, there are several concerns, which
hound valuations. Since deregulation, a large number of MNC’s like Sara Lee have entered the
biscuits segment. Increasingly, one can find imported dairy products in the shop shelves. Amul
continues its stranglehold on the cheese and butter segment. Added to that Hindustan Lever is
eyeing the bakery segment with a keen eye. This intense competition as well as sluggish market
conditions may deter Britannia’s growth plans.
Britannia is widely recognised as an innovative marketer. The brand’s association with cricket
world cup schemes and the recent ‘Kaun Banega Crorepati’ and ‘Lagaan’ tie-ups stand testimony
to this. Its tie-up with the postal department for post cards during the recent ‘Kumbh Mela’ is also
a pointer to this strength.
To expand its market, Britannia has had to increase its advertisement spends from 4% of FY97
sales to 6.4% of FY01 sales. Till now, Britannia has managed to consistently improve its net
margins (from 2.5% in FY97 to 5.3% in FY01) despite the rising advertising expenses. But
against the backdrop of recent slowdown in demand coupled with HLL’s impending entry into the
bakery segment, the company’s margins may get affected going forward.
However, in the longer term, Britannia’s marketing and brand building strengths coupled with the
strategy of widening its presence across the processed food segment make it one of the top
companies in the Indian processed food scene.
Eat Healthy. Think Better. For India`s second largest biscuit manufacturer,Britannia (market share
15 percent), this new punch line seems to have worked wonders. The company has since then
turned more aggressive when it comes to marketing efforts, new product launches and taking on
competition. The newfound vigour has also hastened the company`s entry into the dairy (cheese,
butter and milk) segment and it is likely to enter the mineral water segment shortly.
The company`s strong brand and product lineup is a key asset. It owns a number of successful
brands including Milk Bikis, Tiger, Little Hearts, Good Day, Mariegold, Premium Bake (bread),
Pure Magic, Bourbon and Snax, some of which are leaders in their respective categories. In the
dairy segment the company has made significant inroads in the cheese (market share 30
percent) and butter markets where it competes with the hugely successful Amul.
The company benefits from its strong parentage (Group Danone and Nusli Wadia jointly hold a 44
percent stake in the company). This has given Britannia access to the latest technology and
product range of Danone, which is the world`s largest producer of fresh dairy products. To
support this product line up, Britannia has an enviable retail distribution network covering 2,200
towns comprising 400,000 retail outlets and 2,500 distributors. It has consciously focussed on the
rural markets (agriculture based income) that are witnessing a spending boom after eleven
consecutive years of normal monsoon. These factors have helped Britannia capitalise on the
recent demand surge for bakery and dairy products.
The company is however not resting on its past achievements. It has initiated a comprehensive
restructuring exercise that should enable it to emerge as a leaner and more competitive
company. The first of these is a plan to rationalise the work force that should see the company`s
employee strength reduce by 1,000 to 3,000 numbers. Apart from reducing costs, this move will
enable the introduction of new technology (capital intensive) that will help in improving product
quality and employee efficiency.
As a second measure, the company has taken a conscious decision to reduce the number of
brands in its portfolio. Britannia has already shed 10 brands in the last three years and currently
owns 20 brands. This has helped the company in concentrating its marketing efforts on a smaller
number of brands. For its new product launches the company has been increasingly using brand
extensions rather than creating new brands.
Britannia`s dream run has, however, not been absent of the occasional stumble. The first of these
was the not so enthusiastic response to the launch of the flavoured milk drink, Zip Sip. This is
sure to upset the company`s plan regarding its foray into this segment. Then there is the intense
competition that Britannia is facing from the leader in the cheese and butter segment, Amul.
Although the company has managed to grab a foothold in the market, increasing market share
will be a humongous task. Finally, the company has seen its bottomline fall victim to the bloated
and highly paid workforce. Although the company has stated that it is in the process of
rationalising its employee base, margins are adversely affected.
The immediate challenge facing the company is to withstand competition from the reinvigorated
market leader, Parle, which has been reinforcing its product offerings and stepping up ad spend.
Added to this are fears that consumer product and food sector heavy weight Hindustan Lever
Limited (HLL) (51 percent owned by Unilever) is considering entering into the bakery and milk
product segments. In such a scenario Britannia would have to take on the distribution strengths of
HLL and the product line up of Parle. This could have significant impact on profitability in the
coming years.
Britannia has been successful in responding to the changing environment. However, the future
seems as uncertain as ever. Although the company has overcome its internal drawbacks.
whether the same will hold true in the case of external competition is yet to be seen.
Going beyond biscuits has been the most difficult challenge and a litmus test for the
company. Britannia entered the dairy category with the launch of Britannia Milkman
range of dairy products. With the success of Britannia Milkman Cheese, it achieved a
niche for itself in a category that was defined by a competitor that had created the
category.
BRITANNIA Industries Ltd plans to launch two to three new dairy products (under the
Milkman label) in the market by the end of this year.
Meanwhile, the company has stepped up its focus on the cheese category. It is
currently holding a month-long promotional event here called `Britannia Milkman Not
Just Toppings Cheese Days' targeted at housewives and showcasing innovative
recipes (with cheese).
However, Mr Chopra has ruled out the possibility of launching new varieties of
cheese in the market in the near future. ``New varieties are launched only when the
market becomes saturated. We may, however, launch new forms of cheese,'' he
said.
Other dairy products available under the Britannia Milkman brand name include
butter, ghee, flavoured milk, lassi and milk.
Britannia manufactures cheeses, butter, milk products, etc. But legal consultants to Group Danone
in India clarified that there will be no clash of business interests between the two firms.
Group Danone's independent plans, however, will face competition from Britannia's latest joint
venture with Fonterra Cooperative Group, New Zealand's largest company and the fourth largest
cooperative in the world.
The new JV intends to manufacture and market dairy products similar to the ones being lined up by
Danone.
The French giant is reviving its business plans for India after over four years. The government
approval granted in August 1997 remained dormant during the past years pending crystallisation of
Group Danone's business plans.
The company could only issue 20 equity shares of Rs 10 each (amounting to Rs 200) which was the
capital subscribed to at the time of subscription to the company's memorandum and articles of
association.
The said shares are at present held by Cyrill S Shroff and MP Bharucha, both of whom are
associated with the law firm, Amarchand & Mangaldas & Suresh A. Shroff & Co.
The company has not, however, unleashed any further business plans in the country so far, sources
said.
The foreign holding in the company will be increased from the existing 80 per cent to 100 per cent
through the transfer of 20 equity shares held by Bharucha and Shroff and by way of further
investment of Rs 14.5 crore over a one year period.
B
Chennai: The Rs110-crore turnover Britannia New Zealand Foods Private Limited has
drawn up plans to beef up its dairy business. The company, a joint venture between
Britannia Industries Limited and Fonterra Co-operative group of New Zealand, is present
in four product segments — processed cheese, butter, ghee and dairy whitener.
According to Anupam Dutta, head, dairy business, the company has plans to launch four
bread spread cheese variants, cheese dip and higher aroma ghee. "These are our plans. I
am not in a position to divulge much at this stage," he remarks. The company's products
are marketed under Britannia Milkman. For the company, processed cheese brings in the
bulk of the revenue. While dairy whitener generates revenues in certain markets, the ghee
business is relatively small.
Marketing the dairy products under Britannia Milkman brand, Dutta says the company is
not interested in institutional sales. "We are a focused player in selling our branded
products. Institutional sales is very competitive and does not synchronise with our
strategy."
On the company's premium pricing strategy, he says, "All our dairy products are made
from cows' milk. So there is a slight premium for that."
Meanwhile, Britannia New Zealand has launched Anlene, a health drink. The malt-based
product is the first of the several belonging to Fonterra lined up for launch in India.
According to Dutta, Anlene is a drink for adults above 35 years. "Two cups of Anlene
would provide the day's calcium requirement and prevent the onset of osteoporosis or
brittle bone disease."
The product is available in four packs - sachet, cartons of 200 and 500 grams) and 500
gram jars. Overseas, Anlene is available in different product categories like, milk powder,
yoghurt, and soya milk.
" Dominate the branded dairy market in India with milk and milk products that enhance the health
and well being of the consumer"
Mission of the company
Size: India is possibly the largest contributor of milk and milk products to the
world.
Communication: Made easier due to widespread use of English among the
educated farmer.
Government: India is the world's largest independent judiciary, well established
and free from government interference.
Geography: Geographical location in the center of the
eastern hemisphere.
Low inflation rate: Rarely double digit
Low margin of retail selling
A pool of inexpensive technical and non-technical
manpower
At 20 cents a liter, the farm-gate price of milk is perhaps
the lowest in the world.The native dairy farmer does not
receive any subsidy. So the Indian milk products in the
post-GATT world can out compete those from many
advanced nations that now dominate global markets. As
per recent data available, the cost of milk per 100 kg was
at $14.75 in India as compared to $15.5 in New Zealand
and $33 in USA and EU countries.
High Volumes: With her current output of 78 million
tonnes, India is already the world’s largest milk producer.
While its annual milk production growth rate averages
about 5 per cent, the domestic market for products like
butter, powder, cheese, ice cream, dairy whiteners and
spreads is galloping at 10-15 per cent per year.
New dairy enterprises are cropping up in hundreds: a
few with foreign collaboration have come up. Some make
specialty dairy products like cheese, casein, lactose and
whey proteins. The advent of foreign brands produced in
India is changing the profile of the national dairy
industry. In fact, any multinational food company looking
for overseas manufacturing facilities would find India
irresistible. Already, companies like Heinz, Britannia,
Nestle and Nutricia are gaining popularity. Baskin Robbins
and Blue Bunny have also made its debut with a range of
premium ice creams. Others are testing the waters
before making their debut.
ON THIS PAGE:
The dairy industry is moving forward by leaps and bounds. Aided and supported by
extensive R&D, emergence of new state of the art Dairy plants, training programs
conducted by NDDB and quality control measures that make sure the end consumer
gets optimum value for money.
In vitro
L in k B a r 0 maturation-in
vitro
fertilization
work in
progress at the
Centre for
Biotechnology,
Bombay
Each new
dairy plant is
a step
forward. An
added
advantage to
an industry
looking
towards the
future.
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• Strength: The major strength of the traditional dairy product sector is the mass appeal
enjoyed by the wide variety of products. The market for these products far exceeds that
for western dairy products like milk powder, table butter and cheese. Their operating
margins are also much higher than the western dairy products. The increasing demand
for these products presents a great opportunity for the organized dairies in the country
to modernize and scale up the production.
• Weakness: The major weakness of this sector is the practice of inadequate hygiene in
the preparation and handling of these products and their relatively short shelf life. The
preparation and marketing of these products is generally done by halwais, and that
limits development in the sector.
• Opportunity: The expanding business prospects provided by these products and their
accompanying value-addition, call for a thorough study of this sector. It would facilitate
an increase in the production and marketing of hygienically prepared and properly
packed products to meet the demand of a growing population as has been demonstrated
at the NDDB's Sugam Dairy.
• Achievers: It is encouraging that the success of Sugam has been replicated in other parts of the
country in the public, cooperative and private sectors. Presently, dairy plants mass-producing
our traditional sweets include:
o Sabarkantha and Rajkot in Gujarat
o Warana at Kolhapur in Maharashtra
o Madras, Bangalore, Hyderabad and Chittoor in South India
o Ludhiana, Lucknow and Indore in North India
o Mother Dairy in Calcutta.
o Kerala Cooperative Milk Federation is encouraging its women members to take to the
production of indigenous milk delicacies in the modern way at the village level.
• In the private sector, some of the well-known names include:
o Parsi Dairy Farm, Punjabi Ghasitaram Halwai and Adarsh Dugdhalaya in Mumbai
o Chitale Bandhu in Pune
o K.C. Das in Bangalore and Calcutta.
This trend is gaining ground and will undoubtedly give a further stimulus to milk consumption and
ensure a better price to primary producers
Customer perception
Introduction
Britannia New Zealand Foods Pvt Ltd is eyeing a 40 per cent share of an estimated
7,000 tonne cheese market in India, a senior company official said today. BNZFL
Marketing Manager Naveen Chopra claimed that the Bangalore-based company
currently had a marketshare of 30 per cent in India.