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Dairy to be Rs 2,000 crore business in next 5 years: Varun Berry, Britannia Industries

Source : Economics Times

In a chat with ET Now, Varun Berry, MD of Britannia Industries [BSE 3.21 %], talks about the future course of action for the company. Excerpts:

ET Now: You had said that one-sided demand is an issue. But on the other hand, good news is that commodity prices have come down – prices of wheat, sugar, milk etc have down. Has that translated into a better margin outlook for you?

Varun Berry: We have got tailwinds as far as commodities and demands are concerned. Our efforts are to ensure that we generate the demand by creating interesting options for consumers. But commodity prices are going upwards. So international prices – whether it is wheat or oil or sugar – are low. However because of the demand situation, the government has increased duties on wheat and sugar. As a result of this, we have seen 30% increase in sugar prices. Wheat prices have also gone up. So there is going to be an increase in commodity prices. However, so far we have had about 250 bps improvement in margins because of commodity prices.

ET Now: Your margins have expanded from 6% to north of 10%. That is extraordinary in a tough and competitive environment. Volume growth also has been impressive. How much more to go in terms of expansion?

Varun Berry: First of all, it was important for us to get the right people to run the business and we have a very good team. We have driven volumes through distribution, firstly. We have strengthened distribution in the last six or seven years – in fact, we have doubled our direct distribution in the last three years and have focused on five pillar brands. We brought in innovation, especially in the premium end of our segments. We are also looking at cost efficiencies.

Now, cost efficiencies has played a huge role for us. It means the entire supply chain has to be more efficient. For instance, we now have much larger plants which give us better efficiencies. We have high tech ovens today, which consume less energy. But the most critical point is that we have reduced waste dramatically.

ET Now: Can you give me a number?

Varun Berry: We have reduced waste by almost 70%. We still have 30% to go.

ET Now: The business mix for Britannia seems to be changing. You are present in the value market but that is not your focus area. The focus area seems to be dairy and premium cookie market. Can you walk us through that strategy?
Varun Berry: The focus area at this point are biscuits, cakes and rusks. We made some big strides in the international market as well. Work is in progress in in the dairy department. Dairy is a large segment. Most of us have grown up consuming dairy products. It is Rs 85,000 crores segment and we have been in this segment for almost 16 years and in these 16 years, we have had business which is approximately Rs 400 crores.

So we have not made much progress in the dairy business because of various reasons. In the next three months, a genuine attempt will be made to create a robust dairy business – that probably is our biggest opportunity area in the future.

ET Now: Is dairy – as of now – less than 5% of your total turnover?

Varun Berry: Yes.

ET Now: Can it go to 20 in the next five years?

Varun Berry: I cannot give you a number for that. All I can say is that it can certainly go from Rs 400 crores business to Rs 2000 crore because we consume a lot of dairy in our bakery business as well, so it just synergises through the entire portfolio and offers us a good opportunity.

ET Now: Is dairy a higher margin business than your traditional business?

Varun Berry: No, atleast not at this point in time. Dairy is dominated by cooperatives and the objective of cooperatives is not to get profits for the company. But there are a lot of other areas and segments within dairy that could offer the right profitability and we are going to focus only on those value added segments. We certainly do not want to do milk in plastic pouches. Che ..

ET Now: Cookies is one of your mainstays and is one market where per capita benefits are clearly visible. Will that be your mainstay for the next two or three years?

Varun Berry: Within biscuits, cookies is one segment which is growing fast and will continue to do so. Competition is also doing some interesting things in this area. So when two or three players start to focus on a segment, growth tends to be a lot more than what it normally is.

ET Now: There is a lot of disruption happening within the FMCG space. The FMCG space has been dominated by two or three players for the longest time. In addition to global companies, local companies are also coming in. Are you anticipating disruption in the FMCG space?

Varun Berry: No, competition in our space is fairly rational. What tends to happen is that when you are in a situation of low demand, it puts pressure on companies to do irrational things. We have seen this from a trade discounting standpoint. Our competitors have started to give larger discounts in the market and it is very tempting to do the same but to my mind, that is a short-term measure because the demand situation is not going to last forever.

ET Now: Are you focusing on profits or market share?

Varun Berry: We have to grow, we have to get share and we have to get profits. Now this ‘golden triangle’ does not happen often but our strategy has been to get there and we have been achieving that for the last three years.

ET Now: Give me three categories where you have gained market share.

Varun Berry: Most of the categories that we operate in have been gaining share. So if you were to sub-classify segments, the only areas where we have lost big share in the last 10-15 years was premium creams – which is that entire cream segment. We have made some moves there but not as much as I would have liked to because we were at one point in time at about 75% share and now we are ..

ET Now: Are there any other categories you are attempting to move into?

Varun Berry: No. If you look at macro snacking, the largest is biscuits, followed by salty snacks. Namkeens are a sub-segment of salty snacks, because there is ‘Western salty’ and there is ‘Indian salty’ which is the namkeens. Then you have chocolates. So we have to source business from these segments.