Bali and the snacks factory

LOOKING DOWN FROM THE TENTH FLOOR, the scene at the entrance of the multi-storey Bombay Dyeing Mills building seems like something out of a Mani Ratnam movie. Swanky cars glistening in rainwater sweep up as close as possible to the entrance, security staff in waterproof jackets juggle unfurled umbrellas, metal detectors, and portable scanners, all the while escorting passengers into the building, out of sight of the curious watcher. The sounds of the parking attendants’ shrill pea whistles and impatient drivers tooting horns can be heard over the steady beat of the rain; all that’s missing is a catchy A.R. Rahman score.

On the ground, things don’t look as dramatic but there’s excitement in the air. A guard whispers loudly that Keshub Mahindra has just entered the building. He doesn’t know there is a Bombay Dyeing board meeting in an hour. Heavy hitters including Mahindra, Ratan Tata, and Nusli Wadia are on the board, but the guards don’t recognise many of their faces. Nobody seems to know the small, 55-year-old woman who makes an inconspicuous entrance and heads to the boardroom. But she’s the woman in the sights of the likes of Cadbury (and Kraft), Nestlé, Parle, and ITC.

Vinita Bali, managing director of Britannia Industries (ranked 180 on the Fortune India 500), has just completed her sixth year heading one of the country’s best-known biscuit companies. It’s a part of Wadia’s empire, which also includes Bombay Dyeing. The year before Bali took over as managing director, Britannia’s revenue stood at Rs 1,615 crore (April 2005). That’s nearly the size of Britannia’s non-biscuits business today; overall it’s a Rs 4,638 crore company.

Sure, Britannia evinced its intent to diversify beyond biscuits in 1997. But the rigour, innovations funnel, and expansion in other businesses—that’s all to Bali’s credit. She says her objectives have been first to morph Britannia from a biscuit-maker to a packaged-food conglomerate.

Second, harness the brand equity of Britannia across categories, drawing, for instance, from its heyday of the Louis Banks-composed four-note ‘ting ting ti-ting’ jingle. Third, spot an opportunity in the heterogeneous Indian market and take advantage of it with the relevant product under the dozen or so brands Britannia has created in the past five years.

The results are beginning to show. Breads, cakes, and rusks as a single products portfolio generate over Rs 600 crore. (In 2006, cakes contributed Rs 30 crore to Rs 40 crore, and bread and dairy were small businesses.) Last fiscal, Britannia’s dairy business—flavoured milk, butter, curd, and cheese—raked in almost Rs 250 crore. Then, there are the overseas markets worth Rs 226 crore. All this adds up to 24% of revenue.

The Nielsen Company (TNC), a firm that tracks consumer behaviour globally, estimates that the packaged foods business in India is worth Rs 80,000 crore. According to another estimate, nearly 90% of this is unbranded. That shows the scale of the opportunity. “Those who win at innovating based on unique preferences and needs will create winning brands,” says Roosevelt D’Souza, executive director of TNC.

In a market like this, Bali’s big advantage is her global experience with the likes of Coca-Cola and Cadbury which helped her bag the Britannia job in the first place. At Coca-Cola, her mentor was the legendary Sergio Zyman, the man who helped launch Diet Coke and the driving force behind the failed New Coke. In a conversation on “thinking out of the box”, Zyman once asked, “But where are the boxes?”

She put that thinking to use in rusks, a Rs 2,250 crore market, traditionally the sole preserve of the unbranded sector. She figured there lay an opportunity for Britannia and she brought in biscuit manufacturing methods to make rusks. Launched in 2006, branded rusks, priced on a par with the unbranded variety and competitors such as Hindustan Unilever’s Modern Foods, have clicked.

Trouble is, she isn’t alone in this endeavour.

Though Bali has taken steps to make Britannia more competitive, her adversaries are formidable. At least three multinational companies—Pepsi Foods, Nestlé, and Kraft—are looking to dominate the packaged foods sector with their diversified outlook and ready pool of products. Any of these companies could take a hefty bite out of Britannia’s share in specific categories—Nestlé in dairy, Pepsi in chips and salted snacks, and Kraft in biscuits. Then there are the Indians, Parle and ITC, which have strong, well-entrenched brands and distribution networks. Moreover, Danone, once Britannia’s partner, has re-entered India in 2010. Bali admits that her competitors, especially the global ones “have the advantage of a large number of products”.

All these companies, like Britannia, are banking on the fact that Indians are growing more comfortable with branded foods. “In the past decade, consumers have seen growing urbanisation, increasing disposable income, and lack of time, prompting them to move towards convenience food products,” says a TNC report. Modern trade, which allows cross-category sales, has also helped this shift.

This trend has stabilised most noticeably in the breakfast and mid-meal segment, which Britannia is now trying to enter with its Healthy Start range of ready-to-cook foods such as poha and upma. It goes head-to-head with the likes of Kellogg’s and Pepsi (which has brought Quaker Oats to India), as well as local favourite, MTR (now owned by Norwegian consumer goods firm Orkla), which has a 35% share of the instant foods market.

WHILE ANY OF THESE BRANDS could scupper Bali’s plans for Britannia, the biggest threat could be from Kraft. Globally, some 22% of Kraft’s $49 billion revenues come from biscuits, 14% from cheese, and 28% from confectionery. The company was relatively unknown in India; only expats and NRIs looked for its cheese and biscuits in upmarket stores. In January 2010, the American Kraft bought out British Cadbury, and suddenly Oreo cookies and Tang were available at even neighbourhood kirana stores. Cadbury’s India distribution network is vast. In Bangalore, for example, where Bali sits, a single Cadbury distributor can tap into 200 pharmacy stores with Cadbury dispensers, apart from another 1,400 shops. Because Kraft can piggyback Cadbury (Bali’s old firm) in India, it might not need the year or so that it takes most entrants into this market to acclimatise—understand local needs, buy land, and ensure that vendors maintain quality standards.

Britannia’s present bogey is Nestlé India, which has products in almost every segment of the packaged foods industry—dairy (including baby-food), ready-to-eat (noodles and soups), chocolates and confectionery, and beverages. Its net profits have been high at 13% of revenue, as it has managed to maintain its price premium over the years.

Both Nestlé and Kraft have a considerable presence in the chocolate confectionery segment, a space that Britannia has only recently entered with its Treat Choco Decker chocolate bars. But the threat lies elsewhere: Analysts say that the recent spurt in the growth of boutique chocolate makers worldwide is eating into the chocolate sales of the big companies. This, coupled with a looming global shortage of cocoa beans, means that companies such as Kraft and Nestlé will look to diversify even more to minimise their chocolate presence.

Parle Products—makers of biscuits, chocolates and confectionery—has been Britannia’s oldest rival from India. But Parle has been a house divided, and the beverages and snacks division, Parle Agro, (which includes the bread-based snack Hippo) is a different company from the biscuits and confectionery maker. Till late 2009, there was a battle between the two companies about which had the right to use the name Parle. Such infighting has proved good for Britannia, which spent the time improving its production and distribution processes.

The other big player that’s fast eating into Britannia’s biscuit territory is ITC, which is trying to reduce its dependence on tobacco. Its consumer goods business (non-tobacco) has grown at 55% compounded in the last eight years. Branded foods—biscuits, cracker snacks, and ready-to-eat foods—form a significant portion of this business. What Bali has to worry about is not so much ITC’s growing portfolio of brands but the company’s strong-arm tactics with dealers. Distributors of consumer goods claim that ITC distributors often threaten to withhold cigarettes from stockists who do not display and push the company’s biscuits and snacks; ITC did not respond to e-mails from Fortune India.

BALI’S RESPONSE TO competition? “Segment the opportunity, not the consumer,” she says, paraphrasing another one of Zyman’s teachings.

The launch of snack foods, such as Time Pass, as well as strengthening the dairy business, brought the company’s almost total reliance on the biscuit segment down to about 75%. “Another source of growth has been to dramatically sharpen our brands and liberate them to participate in any category,” says Neeraj Chandra, Britannia’s chief operating officer. So Tiger, which was a popular glucose biscuit brand in the late 1990s, today includes diverse products including milk-based drinks and healthy snacks.

Asked about the move into other foods, Bali says there are opportunities beyond biscuits. “I have always maintained that we are the largest snacks company in India,” she says. It helps that she can bank on Britannia’s strong brand recall and brand loyalty in biscuits to get a boost in other categories.

“Vinita sees the big picture—and she sees it on an outside-in basis,” says Rama Bijapurkar, an independent market strategy consultant. “Vinita will sit up and ask, ‘Why do we see corn (maize) being sold at carts outside our house?’, ‘Why is it there is so much eating happening outside the home, and why don’t we see biscuits over there?’ That is a big-picture question. To answer that, she had to move (Britannia) to other businesses—to the direction of a food company,” she says. Bijapurkar has known Bali from her school years in Delhi when the latter was the head girl.

Bali’s big-picture idea is to push healthy snacking. Step one was to ensure the removal of trans-fats from the entire range of Britannia products without compromising on taste. “We had the ‘swasth khao, tan man jagao’ (‘eat healthy, think better’) line as far back as 1997. In the last four years, this has been heightened because of the strategic interest of the company,” says Anuradha Narasimhan, director for health and wellness at Britannia.

Health and nutrition is becoming a business in its own right, spread across the dairy (low-cal cheese and milk), biscuits (iron-fortified, diabetes-friendly), and cakes categories. On the nutrition front, Bali knows that she’s up against the
Rs 2,431-crore GlaxoSmithKline (GSK) Consumer Healthcare, whose Horlicks brand is now spread across the health-beverage, cookies, and biscuit segments. Nestlé too has long built its space in the healthy foods market.

Britannia, though, is looking to provide more choice in the categories under its new brand, NutriChoice. “We want to drive up differentiation and variety,” says Chandra. “In a lot of our brands, we are adding to variety, which differentiates and provides us with pricing power. Even in the biscuit portfolio, we have scaled up differentiation.”

This has been possible thanks to the company’s innovation funnel. Innovation is a culture fostered by the likes of Shalini Degan, Britannia’s director for delight and lifestyle, and Chandra. Both have worked at Hindustan Unilever, a company renowned for its product development and innovations pipeline. In the past three years, the likes of Chandra, Narasimhan, and Degan have been instrumental in processes that involve all the business categories (dairy, breakfast cereals, and bakery products). The categories have their respective innovation teams with functional heads to plan how to commercialise the idea.

“Every brand and category looks at optimising at their level,” says Bali. “For the company the priorities and sequence may need to be different. For example, something in dairy might need to be prioritised over bakery in a given month. We have a group of people from across the company who come together and assess the innovation funnel.” She adds that the team starts with a large number of ideas. Through a process of discussion, several of these ideas are eliminated, and the team ends up with a manageable number. “On average, we have been putting in one new product every two months,” says Bali.

A former Parle distributor has a grudging respect for Britannia. “Parle has its ears to the ground. It launches products before the consumer starts asking for it, so it can go wrong too. Britannia, on the other hand, watches the market, improvises before launch, and comes out with better products. But it is rarely the first to launch,” he explains.

THE PRODUCT RANGE AND LAUNCHES have not gone unnoticed. For long, Britannia was a mid-cap stock whose path was dictated by the commodity markets. But its recent run has won plaudits from analysts. Varun Lochab, executive vice-president of Religare Capital’s institutional equity research, notes that the organised market for processed
food is still small. “Growth is a function of the categories growth. Once you create the brand, there is a tremendous value to it,” he says. The pricing power and margin profile of a GSK Consumer Healthcare and Nestlé are very different from that of Britannia, which is why the multinationals are better valued.

The markets are excited by Britannia’s recent run. “Operating margins expanded because of efficient cost management and gross margin expansion,” says an equity analyst from Angel Broking in Mumbai. “For five consecutive quarters, Britannia has been posting 20% plus top-line growth. On the margin front, it showed a stunning performance by efficiently managing raw-material and operating costs. As a result, the company reported gross margin expansion and operating margins have expanded after five quarters of contraction to 6.5%.”

Under Bali’s leadership, branding and marketing efforts have been strong. It is in the supply chain that Britannia will face stiff competition from local players, particularly in its daily business where a few minutes’ delay in the mornings can be a huge advantage for the rest of the pack.

Expectations are higher from the retail chains, where the focus is on ‘fill rates’ or the ability to meet demand. With a spread across business categories, Britannia has that well covered. But retailers have higher expectations in terms of what must get visibility. In the dairy products space, for instance, local demand drives the visibility of Amul, Nestlé, and Britannia.

When it comes to milk, Nestlé has an early-mover advantage in curds and tetrapacked milk. In cheese, Britannia tends to be a favourite. In large outlets though, the visibility drivers can be unforgiving, ranging from branding effort, quality, visual merchandising, inventory management, logistics, and packing standards. Here, battles can be fierce between Nestlé, ITC, and Britannia. Sales can only be as good as the visibility.

THROUGH HER SIX YEARS AT THE HELM of Britannia, Bali has often taken inspiration from the performing arts. She closely follows the performance of artistes who take on multiple forms and roles—a dancer who must play the mahishasura (demon) and the devi (goddess) simultaneously, or Krishna and Yashoda. She also still remembers watching Dustin Hoffman in the 1985 Broadway production of Arthur Miller’s classic play, Death of a Salesman. Salesmen may come and go, she says, but a brand’s journey is unending.