Britannia to start manufacturing its own dairy products

In an attempt to scale up its faltering dairy business, Britannia is planning to start producing all its offerings including cheese, curd, yoghurt and flavoured milk on its own.

The management has given itself time till December to firm up its strategy for this division, which now contributes just 5% of its turnover, managing director, Varun Berry told analysts.
The strategy, it appears, has been triggered by rising milk prices and competitors like ITC foraying in this space. The cigarettes-to-hotels major has just completed its backward integration by setting up its own dairy farm in Bihar.

Britannia’s dairy portfolio, which comprises products like cheese, curd, flavoured yoghurt, ghee and packaged milk, works on the model of outsourcing.

“The cyclical of dairy business always comes to the fore. The business in largely dependent on milk. So for us to really become a long-term player, it would be very important for us to get into where our dependence on the third party is reduced. Currently, we are buying our products from the third party. So we are basically traders as far as our dairy business is concerned,” Berry has told analysts.

Britannia has for some time been working on a strategy to scale up its dairy business and has now given itself time till December to start work on it.

“It has taken us far longer than we imagined. In the beginning, we needed to really get the operating model. We are still in the process. We have done three rounds but we are still not satisfied with the output. Now, the deadline for us is the end of this calendar year. If we can do that, we would be a happy lot,” Berry said.

Without an integrated model, Britannia is not only finding it difficult to scale up the business in the absence of dedicated supply chains, it is also losing out on existing businesses to bigger competitors like Amul.

“In the case of cheese, the premium gap between us and the market leader still remains as we are still traders with lots of heads to feed. If we have a strategy to become an integrated player in the dairy business, then things can change considerably,” he said.

While growth in dairy business was seen during the last few years on account of increasing milk consumption and value-added segments like cheese and yogurt, competition is heating up. Several private companies made a debut into the market last year, while cooperatives continued to expand their footprint.