Daybreak - Britannia's unfulfilled dairy dreams

Episode Date: February 8, 2023

Britannia's market share has consistently been inching up over the last decade or so. And its shares have doubled in value in the past five years. Apart from biscuits, the company also wants to crack the dairy business. But in the year ended March 2022, the biscuit giant’s revenue was nearly $1.7 billion and out of it only $60 million came from dairy. Despite this, the biscuit giant has grand plans to expand its dairy business.Tune in to find out more

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Once upon a time, in the erstwhile capital of British India, a group of English businessmen got together in a tiny house to start a new venture,

a biscuit-making company. The initial investment? A grand sum of $295.5. The year was 1892. Any guesses which company I'm talking about? If you guess Britannia, then please give yourself a pat on the back from me. More than 100 years and multiple owners later, Britannia is now India's fourth most valuable FMCG company.

Its market capitalization is worth more than 13,000. billion dollars. It is currently owned by the Vardia Group, which acquired it back in 1993. And why are we talking about Britannia today? Well, the company has been doing exceptionally well lately. In fact, its market share has been consistently rising over the last decade or so, and its shares have doubled in the last five years. Just a few days ago, Britannia released its quarterly results. The company saw a revenue growth of 17%. So clearly, it is doing quite well. But there is one thing that the company still has not managed to pull off so far, which is to make a mark in the dairy industry. And it has

been trying for quite a while. It already has a range of dairy products from butter to cheese to curd and dairy whitener. It even sells milk. Now, to be fair, the dairy business is a brutal space to be in. But Britannia has been unsuccessfully trying to crack it over the last 25 years, and that is a long time to not give up on something. In the year that ended in March 2022, the biscuit giant's revenue was nearly $1.7 billion. And out of it, only $60 million came from dairy. So today, I will tell you about Britannia's relentless efforts to crack the dairy business in India. Welcome to Daybreak, a new podcast from the Ken. I'm a host Nidha Sharma and I don't chase the news cycle.

Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Wednesday the 8th of February. The thing is, Britannia has been trying to crack the dairy business for too long to give up now. And it has big plans for the future. In an earnings call in May last year, the managing director of Britannia, Varan Berry, had said, and I'm quoting, yes, we would want to be at least a $2,000 crore-rupy business in dairy. In the next five years, maybe it's a moving target.

Maybe I said that two years ago. I'm saying it again, so don't hold me to it. But this time, certainly, we would want to get to $2,000 crore rupees. I think this year is going to be the year where we will take the turn as far as dairy is concerned as well. End quote. And it seems like the company is still doing all it can for a larger share in the dairy market. According to the Mint, during an earnings call last week, Britannia executives outlined

plans to achieve this goal. The company opened a new factory recently in Ranjengal that is making dairy products. At the same factory, a line of cheddar cheese will be produced in the next financial year. The company said that the processed cheese line will be ready for the market in the second half of the financial year 2024. Cheese makes half of Britannia's dairy sales. So it came as no surprise when the company sold 49% in Britannia Dairy Private Limited, its subsidiary to French cheese maker Bell Essay in November last year. The company has also started selling fresh panier or cottage cheese in parts of Western India.

And last week, in line with its dairy plants, the company told analysts that it would be collecting 150,000 litres of milk a day by the end of 2023. Now, if you compare this volume to Amul, which is the largest dairy company in India, it is nothing. Amul collects 26 million liters of milk every day. But compared to Britannia's own current volume, this is two times the amount. So clearly the company is still doing all it can to achieve its goal. Coming up next, the challenges that lie ahead in Britannia's dairy dreams. India is the world's largest producer of milk.

But the country's dairy market is very, very difficult, especially for new players. Amul controls one third of the country's fresh milk market, half of the cheese industry and more than four-fifths of the butter market. And apart from Amul, there are a bunch of established regional cooperative brands such as Arvin and Nandini in the southern states. There are also private companies like Parag Milk Fruits Limited and Bharat Dairy Limited. And the challenge for Britannia is not just the number of competitors it has. It is also the very nature of the dairy supply chain. Thousands of farmers have to be convinced to send milk to strategically located collection centres.

From there, the milk has to be transported to the nearest factory. Time is of the essence here because milk spoils very fast. And this is why most FMCG companies think dairy is not a business worth all the effort that it actually requires. Danone is an example. After struggling to scale its operations, in 2018, it left India's dairy market altogether. Coming up next, why it makes sense for Britannia, to continue its efforts to succeed in the dairy sector. Britannia wants to be a food company and not just a biscuit brand.

And it only makes sense, especially now. Why? Because the efforts by companies to level up their game in the branded food and beverages market comes at a time when the demand for packaged food is increasing. This in turn has contributed to the growth of the FMCG market. The FMCG market in India is expected to be worth $220 billion by 2025. In 2020, it was just $110 billion. There is one more reason that is keeping Britannia on its toes.

And guess what that is? Reliance has entered the building. Reliance Consumer Products Limited, the FMCG Arm of Reliance Retail, has partnered with a Sri Lanka headquartered biscuit manufacturer. Now, it will be directly competing with Britannia, Pauli and the likes. Britannia MD, Warren Berry, in response to the news, even said, and I'm quoting, Reliance has very deep pockets, so we will have to watch out. We'll have to treat this as a very, very dynamic and a very quick changing scenario

and make sure we match our steps. End quote. Now, Britannia's brilliant performance at the stock market in the last few years comes despite its failed efforts in dairy. But like Sita Rahmanjid, deputy editor at the Ken, said about Britannia in his latest newsletter, there'll surely come a point when its investors too will want it to be a force to be reckoned with in more than just biscuits. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings,

A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host and today's episode was edited by my colleague Rajiv Sien.