Britannia to bring 'new to India' products; up mkt share:MD

Varun Berry, MD, Britannia Industries in an exclusive interview to CNBC-TV18’s Shereen Bhan said the company has set its eyes on product innovation and is looking at bringing "new to India" products. One can expect a lot more launches in the premium segment going forward, he added. He said the company is confident of growing faster than market in the biscuit category and in turn gain market share. The company is planning to relaunch and restage its biggest brand  ‘Good Day’ next week, he said.With regards to investments, he said for the current fiscal total investment would be north of Rs 400 crore. “There is substantial amount of investment going into manufacturing facilities,” he added. The main objective is to have state-of-art facilities, efficient scale facilities that would help leverage costs. The company also has plans to do much better in the diary business, which is currently a small part of the portfolio and would like to see a larger diary business for Britannia, said Berry. However, since the business requires a lot of investments, a lot more work is yet to be done on that front, and would likely come out with more on that by the end of this calendar year, he added.Britannia Industries Tuesday reported a stellar set of number for its first quarter ended June, 2015. It beat street expectations with consolidated net profit surging 66.9 percent to Rs 190 crore from Rs 114 crore in the corresponding quarter last fiscal. Revenue, too, jumped 13 percent to Rs 2018.9 crore in the quarter ended 30 June, 2015 against Rs 1787 crore in year-ago period.On the revenue mix front, he said the company would like to get more diversified going forward. The first quarter did see larger growth in export and international business and hope to keep it that way going forward. Although the company would strive to bring newer products to the market but not at the cost of existing ones, said Berry , it plans to achieve that through first consolidating its current products and then diversifying into newer ones.Meanwhile, advertising costs for the company currently stand in the range of 7.5-8% of total revenues, said Berry.Speaking about the regulatory environment in India, Berry said there needs to be clarity on Food regulation front and there is a need for the whole industry to work together on food regulations.Below is the transcript of Varun Berry's interview with Shereen Bhan on CNBC-TV18. Q: It was another good quarter for you?A: Yes it is a good quarter, we feel good about the fact that we have been very consistent not just on the topline, the bottom line as well as market share and we hope to keep it that way. Q: Let’s talk about the road ahead and one of the things that you have been attributed with is of course the cost management exercises that you have been able to pull off very ably at Britannia and we are seeing that being reflected in your margin performance which have expanded quarter-on-quarter (Q-o-Q). If you can take us through what more we can expect in terms of margins and whether the cost management exercise is now complete or whether we can see further reduction? Your margins have gone up significantly this quarter but that is also on account of the benign low input costs that you are witnessing, what more can we expect in terms of cost management and hence margin expansion?A: Let me just tell you two things, first of all it has not been a dramatic increase. If we were to look at FY11-12, our operating margins were at 4.6 percent, from there they have steadily gone up from 4.6-5.5 to 8 to 9.3 and this quarter is at 13 percent which is a fantastic number for operating margins. Obviously I can’t give you an outlook on how the year is going to go by but certainly our endeavor is going to be to keep the momentum going.There is a lot of work that has gone into building the topline but there is a lot of work which has gone into controlling the waste that we have in our system and it is not just us, every company has waste. There was waste in terms of the trade loads that we used to do in the market place to increase the trade, which we have been able to reduce trade loads by almost 30 percent. The market returns that we were getting have been reduced by almost 35 percent. The efficiencies that we have been able to bring about in the supply chain have been tremendous; it has been an overall performance. The distance traveled by the biscuits, obviously every kilometer gives us saving because it is all about fuel expenses etc, so we have been able to bring efficiency in to every part of the business and believe me as far as these are concerns, sky is the limit, it is never going to be over. We have to treat every day as a new day and start to see and evaluate what are the opportunities ahead of us to reduce costs even further and frankly we are not reducing costs where it is going to hurt the business, we are only reducing costs where it is going to make the business better.Q: What I am trying to understand is that can you do significantly better than 13 percent which you yourself have articulated is a fantastic number; do you believe that you will be within this range over the next few quarters as far as margins are concerned? You talked about how you have been able to bring down trade spends by about 30 percent, I would imagine your logistic costs have also come down significantly on account of the efficiency measures that you have put in place, what will that translate into incremental growth as far as margins are concerned?A: As I was telling you, I am not going to give you any forward outlook numbers because we don’t do that but our journey continues, the journey is not over – in costs there are opportunities, in topline there are opportunities, we are hoping that the category which has been in low single digits is going to come back which is also going to give us some tailwinds as far as growth is concerned. Our endeavor to launch premium products with higher margins certainly continues, our distribution endeavors continue. In fact last quarter we have added 80,000 outlets to already a pretty large distribution network.We are also looking at the rural distribution pretty seriously. If you look at what the press reports say, they are talking about slowdown in rural but we haven’t seen any slowdown. In fact our rural growths are in high double digits and that is because we are expanding our rural footprint, we have almost got 7,500 rural distributors who cover villages and small towns for us. So we are firing in all directions, we are making sure that we look at every gap whether it is in our geography, whether it is in our portfolio, whether it is in our endeavor to more efficient and make sure that we take this company to newer heights every day.Q: Let me again ask you then, if you are saying that you actually haven’t seen any consumption slowdown as far as rural India is concerned and you are actually seeing strong double digit numbers in rural consumption, then what is the overall consumption picture and what would that then mean as far as volume growth is concerned? Are we to assume the volume growth will be in the 10-12 band or in the 8-9 band, what would be a fair assumption as far as volume growth is concerned?A: Again you are coming back to outlook, I am sorry I can’t give numbers.Q: Don’t give me numbers bit I am trying to gauge your sense of how strong consumption sentiment is?A: Consumption sentiment is very weak. Frankly category growth is very weak at this point in time. Revenue growths are in the 4-5 percent and volumes would be about in the same maybe 3-4 percent volume growth and a 4-5 percent revenue growth.As far as the industry is concerned, the sentiment certainly has to improve as we go forward. That is very critical and for that we are hoping that a lot of the measures that the new government has spoken about will start to get implemented which will change the sentiment of the consumer because what we are seeing is that even in low involvement categories like Fast-moving consumer goods (FMCG), consumers have been either reducing their consumption or down trading top cheaper products, so that has to change. It is completely about sentiment, it is completely about how I feel about money in my pocket and hopefully that should change as we move forward.Q: Let me ask you then in terms of the efforts as far as premiumisation is concerned and you are not the only company that is looking at moving up so to speak. My conversation with the new Managing Director at Nestle also seems to reflect exactly the same sentiment that the effort is really going to be in terms of premiumisation. What more can we expect on that front, how do you intend to further the effort towards uptrading of premiumisation and how soon?A: Well, we have been doing a lot of that. So, if you have seen the last five or six products that we have launched they have all been in the premium segment starting with NutriChoice Heavens, Chunkies, Chocolush, Nut and Raisin Cake, Muffils all of these have been in the premium segment either in biscuits or cakes and you will see a lot more of these. What we are looking at are some technological breakthroughs in terms of getting some absolutely new to India products into the market which will help us create excitement within the Indian consumer and will also test our ability to give organoleptically superior products to our consumers._PAGEBREAK_Q: When you say 'new to India' products both in terms of categories you are looking to enter as well as the timelines, if you could share more colour and I want to contextualise this in essence in terms of how wide you are likely to stretch yourselves because I remember a previous comment that you had made saying that you want to make sure that Britannia remains within the boundaries set by the consumers who might have set perceptions about the brand and very few brands can actually do both sweet and salt. So, how should we read the new product launches in that context?A: In this context I am talking about categories that we operate in. These are going to be products within the categories that we operate in. There is a lot of work happening on adjacent categories as well, which we are not completely ready with but are in the process of doing the insights and research that is going to take a little bit of time.As you will understand getting to new categories requires a lot of due diligence. We are setting up a state of the art R&D centre in Bangalore which is going to straddle obviously all the categories that we operate in but also some of the adjacent categories that will give us an opportunity to produce and test new products. So, that is a longer term plan that will probably take us about a year to get to fruition.Q: So, you are saying new category launch is only likely FY17 onwards and are we to assume then that salt is completely off the table or savoury could still be on the table?A: It is a long way to go. So, I would not like to comment at this stage because unless we do our due diligence, unless we get to consumers test these products out and come back with the right inputs on the direction to be taken by us I don't think I will be able to comment on that but certainly we will talk to you when we are ready.Q: Let me talk to you then about the plans that you have as far as the existing categories are concerned and if you can share more colour with us in terms of your top performer which of course is the biscuit category. What is the current market share, it was 35 percent if I remember correctly, have you been able to eke out any more market share as far as the biscuit space is concerned and what kind of growth do you envisage there and what kind of incremental innovations can we expect on that front?A: As I told you we have been growing faster than the market, faster than the category. So, that implies that we have been gaining share.Q: So, what would the current market share be?A: We don't talk about our share because these are all proprietary numbers given by AC Nielsen, so we don't talk about the numbers but yes, I can tell you that we are growing faster than the market and that we hope to continue to do remaining competitive, making sure that we fulfil all the geographic gaps, portfolio gaps and we innovate with products which are better than competition, appeal to consumers a lot more than what other products in the market are and are also technologically different from what is available. So, there is a lot happening on that front. Again I won't be able to tell you which direction we are headed in but all I can say is just watch this space because you are going to see a lot of action in that area.Q: I also want to talk to you about what you intend doing to grow the dairy side of the business because that accounts in FY14 five percent of your revenues. In fact in the last quarter you did say that you were looking at boosting your presence within the dairy segment but you were going to come back with a plan to the board. Has there been any further movement as far as growing the dairy business is concerned?A: Yes, there are two parts to the dairy business. One is current business and we continue to do all that is required to build the current dairy business. The second part is about looking at what the go-forward is. I have spoken about the dairy business being a very small part of our portfolio while the total dairy market is very large and I would certainly like to see a much larger dairy business for Britannia. So it is still in the works. We have had one round with the board; we are still working on it. We are still a little distance away because it requires a lot of investment. So, again a lot more work needs to be done before we are able to stand up and say that this is the path we are going to take and it is good to be deliberate than to be knee-jerk in these kind of areas where you require big investments. So, I am happy that we are slow and steady but deliberate about this and I can assure you that we will be back talking with you about this in the near future.Q: In the near future would mean this calendar year or perhaps only FY17?A: No, I would say, probably this calendar year towards the end of it.Q: Do you see your revenue mix changing significantly, perhaps FY17 or FY18 onwards?A: I would think so. We certainly would like to make sure that we get a little more diversified as we go forward. Even in Q1 which is the quarter which has gone by, we have seen a much larger growth in our export and international business. So, to that extent there has been a little bit of a change and we hope to keep it that way.So, if you think about it our cake and rusk portfolio is small. That is growing very aggressively. Our international portfolio is small, that is growing very aggressively. Our dairy business has not been growing very aggressively but the bottomline has been accretive to the business. Dairy is something that we really have to figure out as we go forward. However otherwise we are moving in the right direction in most businesses.With our new product launches, new category plans that we plan to be ready with; in the next 6-8 months I think we will be certainly more diversified company. Q: You said new category launch will be ready in the next 6-8 months? These will not be the existing category launches that you were talking about but the new category?A: No. All the existing category launches are going to be in this financial year. We should be ready with our plan on adjacent categories, new innovation in certain categories and international business plus dairy in the next 6-8 months.Q: Let me also ask you about your advertising and communication strategy and do you see advertising spends going up significantly? You had big ticket events that you were participating with -- the Filmfare and the Cricket World Cup and so on and so forth. Do, you see on the back of new category launches as well as new product launches the need for advertising cost to go up significantly? A: Advertising costs are ranging from 7.5 percent-8. What we constantly do and evaluate is what works and that is a pretty large amount if you think about it.So, 8 percent of our total turnover is a fairly large number. What we do within that number is what works for us and what doesn't work as well.So, we have de-prioritized for example trade loads and we have reduced our trade loads by almost 30 percent in the last couple of years.We also keep evaluating whether promotions works or advertising works and we keep putting, in fact we do a lot of research to check what gives us the best bank for the buck and we put money behind it.We also make sure that we keep a war-chest for all the big bang launches. For example we are re-launching, restaging 'Good Day' next week. So, you are going to see a pretty high velocity campaign behind Good Day because that is our biggest brand. Similarly a lot of new products, restages etc are going to happen which will be well supported through our advertising and sales promotion spends.Q: I understand that you will be setting up two Greenfield factories. You are also looking at hiking manufacturing capacity. What does that mean in terms of investments; of course you are setting up that new R&D facility which should be up and running by the end of the year. What will it mean in terms of investments in this current fiscal and in FY17?A: This current fiscal the total investments are going to be north of Rs 400 crore. We are putting up two Greenfield facilities, those will be about Rs 250 crore odd including the land which was purchased sometime back and the R&D facility, expansion of certain other plants that we have namely our Gujarat plant. So, there is a substantial amount of investment going into manufacturing facilities.The objective really is to have state of the art, very efficient scale facilities which we are able to leverage our cost with and get to be more efficient.Q: Your strategy has been to focus on five power brands, you have also said that you don't intend to diversify in a hurry. The focus has really been to scale up but also to do it efficiently to rationalise what wasn’t working for the company in the quest to up your margins. The move towards diversification and consolidation of your current categories how do you see that playing out over the next 12-24 months?A: That is the best thing to do, first you have got to consolidate, and then you have got to diversify because if you do not consolidate your current portfolio and keep diversifying then it becomes a very complex portfolio for any company to get their hands around. So, consolidation - first and diversification later is how I look at it. That is going to work for us because then we will have a controllable factor for ourselves and the teams will be able to do justice to the brands as well as the initiatives behind these brands.Q: What about the regulatory environment? We have seen this entire industry faced with uncertainty on account of the Food Safety and Standards Authority of India (FSSAI) and what it has done as far as one particular category is concerned but that sort of opened the Pandora's Box across the board. How concerned are you about the regulatory environment at this point in time specially dealing with the regulator?A: Well there needs to be some clarity on that front but as far as we have concerned we have done some due diligence on our food safety and regulatory standards. We have created all the right infrastructure, we have made sure that we do complete due diligence on the input material that we receive because that is the only uncontrollable, we get huge quantities of wheat, oil. So, all our input materials have to be tested but they have to be tested from a sampling standpoint. So, sugar we have to test, we have to test flour, we have to make sure that we test oil.Now because these are outside suppliers it is very important that they also are able to keep to the same standards of food safety as we do. So, there is a need for the entire supply chain for the food companies to get together, right from the farmers to the food processing companies in the country and make sure that we look at each element and we look at how we can make each element as safe and as solid as possible. So, we have taken this to the logical conclusion through Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI) when we are hoping that we will be able to do something about it as we move forward.