Britannia's growth in rural markets, focus on premium products drove profitability in Q1

Over the next 2.5 years, Britannia is looking at investing Rs 700 crore in new manufacturing units and to enhance existing ones
Britannia's growth in rural markets, focus on premium products drove profitability in Q1
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Rural markets performed better than urban markets for biscuit maker Britannia with the pandemic not affecting rural areas in the initial months, the company’s Managing Director Varun Berry said on Monday. “Rural was absolutely devoid of much change,” he said.

Looking into the future as well, Berry remains bullish on rural markets on the back of a good monsoon and higher agricultural output, which would mead to a higher income. According to the MD, Britannia focussed on the Hindi states, and the company found success.

Focus away from innovation

During the quarter, most part of which was under a lockdown, Britannia focussed on its core products, with innovation taking a backseat. While Britannia released two new products, Berry said that Britannia's focus was mainly into getting products into the market.

He added that the future is uncertain for at least the next six to nine months, and said it would take one fiscal to return to earlier innovation levels. “There is no way to forecast what is going to happen. We are embracing uncertainty. If there is an opportunity today, just grasp it,” he said.

Since the future is uncertain for the next six to nine months, the company will give priority on the core products, and less focus will be on innovation, Berry added.

Britannia is looking at a capital expenditure of Rs 700 crore over the next two and a half years for new plants — in Uttar Pradesh, Tamil Nadu and Bihar -- and to enhance capacities in Orissa and at Ranjangaon, Maharashtra.

Premium products outperform

Even as discretionary spending among consumers reduced amid the pandemic, Britannia saw its premium offerings being sold more than their cheaper counterparts. 

Berry said that the company didn't witness any consumer downtrading.

“We went by 20:80 rule , where 20% of the SKUs brought on 80% of the revenues,” he said.

Britannia saw a massive revenue growth of 26% year on year during the quarter, and saw its net profit increase by 117%. While announcing its quarterly results, the company said that the massive growth in profits came on the back of cost efficiencies. It also saw 22% volume growth.

Britannia put in place several cost saving measures this quarter such as reduction in working capital and leveraging fixed cost. However, Berry said these measures are unlikely to sustain. While the company continues to look at how it can retain cost efficiencies, Berry believes that at 50% of these costs will certainly come back, including bringing back spending on ads once they have more products.

“There is no doubt in my mind that the 22% volume increase is not going to remain but I do think that there will be changes in consumer behaviour, some of which will remain for at least a year,” he said.

Berry said the pandemic will lead to permanent changes in consumer behaviour, and home consumption will increase.

"The neighbourhood store has remained. People are not looking at driving long distances to super markets for shopping but are going to the closest store,” he said. For this, he added that they are looking at first ensuring that all the stores they supply to get the products. 

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