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Britannia Industries’ earlier moves to cut costs, increase distribution and improve its product mix appears to be giving it an edge in packaged foods, relative to its peers.
Nestle, maker of Maggi noodles and Nescafe, and GlaxoSmithKline (GSK) Consumer Healthcare, maker of Horlicks malted beverages, are both feeling the pinch of a slowdown. Britannia maintained a double-digit growth rate in both revenue and profit for the September quarter, while Nestle and GSK had a harder time on those fronts.
Britannia reported a two-fold increase over a year earlier in net profit (50 per cent if a one-time gain of Rs 124 crore is taken out of the net profit of Rs 270 crore) and a 12 per cent gain in net sales for the three months ended September.
Nestle reported a nearly nine per cent growth in top line and bottom line for the September quarter. GSK Consumer saw a 10.6 per cent and 9.1 per cent growth, respectively, in the two measures for the same period.
Also, the key point is that Britannia’s revenue growth for the quarter was led by volume; that of Nestle and GSK Consumer was price-led. Moreover, its operating margin grew 37 per cent in the September quarter against a muted performance by the other two. Nestle saw a 11 basis points (bps) slide in operating margin to 20.6 per cent and GSK’s drop was slightly more, at 80 bps, to 14.6 per cent.
At the time of announcing the results last week, Britannia managing director Varun Berry had said two-thirds of the revenue growth was coming from volumes, a sign that offtake of its products was good. That hasn’t been so with Nestle and GSK Consumer.
Abneesh Roy, associate director, research, institutional equities, Edelweiss, says: “Britannia has introduced a few changes to its sales structure in the past one year. It now has two sales people catering to a shop, as against one person earlier. This has ensured shops are not neglected, helping offtake even as it ramps up distribution.”
In recent months, Britannia has increased its direct reach to outlets by 10 per cent and rural reach by another 20 per cent. In all, the company reaches a little over 3.6 million outlets in the country, which Berry has said he wishes to improve.
In an earlier conversation with Business Standard, Berry had said he proposed to take manufacturing to centres of consumption. “At the same time, we need to supplement manufacturing with distribution, especially in areas where we remain weak such as the north and west of India,” he’d said.
Britannia has been working on this plan, putting more field force into areas such as Uttar Pradesh, Madhya Pradesh, Bihar, Rajasthan, Gujarat and Maharashtra, beside identifying distributors who can push its products in these markets. “We are under-leveraged in markets such as Gujarat, where we are merely 40 per cent of our national share. Things can certainly improve,” Berry had said.
In parallel, the company is taking control of manufacturing, earlier mostly outsourced, producing nearly half its requirements in-house. Its focus on cookies has also grown in recent months as against biscuits, perceived as being a bit more discretionary than the former, launching products such as Tiger Butter Krunch and Nutrichoice Heavens, respectively targeting the mass and premium ends of the market.
Berry has said that there will be more product launches in the coming months, implying the company expects to keep the growth momentum going.
