Britannia's Volumes To Recover In A Few Quarters, Says Varun Berry

Britannia Industries Ltd., India's largest biscuit maker, expects volume growth recovery to take some time before regaining pre-Covid momentum as the inflation shock has been severe.

"Volume growth remain tepid and it [recovery] will take some time because consumers have been hit with fairly high inflation," Varun Berry, the company's executive vice-chairman and managing director, told BQ Prime.

"Also, because we have cut grammage in packs across 55% of our portfolio, I think it will take 2-3 quarters for volumes to be at a reasonable level," he said.

Volume indicates the unit number of products bought or consumed.

The fast-moving consumer goods industry has seen volumes decline over several quarters as soaring prices dented demand.

According to Berry, prices of a few commodities—such as palm oil—have cooled off, which is a sign of relief for both consumers and companies.

For consumers, it means the company is unlikely to increase the prices of its products any more. For companies, it implies the margins will improve from increased sales and lower expenses.

Britannia, which makes a range of bread, cookie, cake and dairy products, has raised prices by about 22% to offset inflationary pressure on margins.

In this quarter, inflation has not been as rampant as it has been in the last six quarters, Berry said, though "...we are still seeing a bit of inflation".

"Milk prices are going through the roof because of the lumpy skin disease [that happened to cows]," said Berry. "But as the government is trying to control that, milk prices should come back to normal soon."

Wheat prices have also been rising, he said.

"However, three months down the line we have the wheat season and with good crop expected, I am hopeful that prices may ease." he said. "Overall, in the next couple of quarters things should come close to normal."

Say Cheese

Britannia Industries plans to replicate its biscuit business template to dominate the mid-to-premium cheese segment in India.

The cookie giant, which entered into a joint venture agreement with French cheesemaker Bel Group last week, expects its cheese business to touch Rs 1,250 crore in five years—a five-fold jump from its present turnover, said Berry.

Currently, only about 2% of Britannia’s revenues come from the cheese business.

The 150-year-old Bel Group is the world's fourth largest cheese producer, selling 20 billion portions every year across 120-plus countries.

In India, the company already has a presence via its 100-year-old marquee brand 'The Laughing Cow'—albeit a small one—making around Rs 15-20 crore in sales.

Globally, the Bel Group has other brands such as Kiri, Babybel, Boursin, Nurishh, Pom'Potes, GoGo squeeZ, and some 20 other local brands, which helped generate 3.38 billion euros in sales in 2021, according to the company's presentation.

The overall cheese market in India is estimated to be worth around Rs 5,000 crore, with just one large player—Amul.

The plan is to leverage Bel's technical know-how, innovation and expertise in research and development to expand the underpenetrated cheese category in the country, Berry said.

Cheese consumption per capita is just 0.15 kg in India, as compared to the European Union where it is 18.5 kg.

"Currently, just 5% of Indian households consume cheese, but the category is growing very fast at about 23-34%," he said.

Britannia, as part of the deal, brings to the table its manufacturing capabilities, distribution reach and understanding of Indian consumption.

Britannia Industries will retain a controlling 51% stake in its wholly owned subsidiary, Britannia Dairy Pvt., and sell 49% stake to the Bel Group to form the joint venture. The entity will be renamed as Britannia Bel Food.

There is a lock-in period of 20 years for both parties from Dec. 2, 2022, the day when the proposed deal is expected to be completed. Britannia will receive Rs 262 crore as part of this sale.

The starting point of the joint venture will be The Laughing Cow brand.

The JV complements Britannia's growth plans to scale up its presence in the cheese segment, which has so far been sub-scale via outsourcing, not just in India but also in markets like Nepal, Bhutan and Myanmar, Berry said.

Its cheese-making facility in Ranjangaon, Maharashtra—which has the capacity to produce 15,000 metric tonnes of cheese per year—will go live next year. Till then, its products will be made through contract manufacturing.

The company has so far invested about Rs 170 crore as capex in the facility and expects to double this investment in two years.

"Thanks to this joint venture, we will accelerate in India after four years of presence in startup mode, which enabled us to confirm the relevance and the potential of our product offerings," said Bel Group's Chief Executive Officer Cécile Béliot.

The JV also aims to tap markets beyond metros. "We would like to go to about 10 to 15 new cities by the end of next year with our cheese portfolio," said Berry.

Currently, it sells cheese in 35 cities. Although its products will be priced in the mid-to-premium range, it aims to attract new consumers with single-use cheese sachets worth Rs 10, Berry said.

It comes at a time when most fast-moving consumer goods makers are introducing cheaper variants, of which Rs 10 is the popular choice, as an inflation-led slowdown in Asia's third-largest economy depresses demand.

Watch the full interview here: