Forget The Feud, Savour The Taste

Updated: Jun 29 2003, 05:30am hrs
The battlelines have been drawn and the first salvo fired. The sacking of Britannia MD Sunil Alagh has sparked off one of India Incs most sought-after stories. But both sides have called for a ceasefire, or so it seems. Yet, the battle between Wadia group chairman Nusli Wadia and Mr Alagh could well be a long one.

But what matters now is: Will this fight cause an irreparable damage to Britannia During Mr Alaghs 10-year tenure as managing director, the companys sales increased to Rs 1,451 crore (Rs 14.51 billion) from Rs 447 crore (Rs 4.47 billion) in 1992-93. Net profit jumped from Rs 12 crore (Rs 120 million) to Rs 203 crore (Rs 2.03 billion) during the period. The 55 year-old charismatic Mr Alagh joined the countrys largest biscuit company in 1974 as a group product manager from Jagatjit Industries, and was its managing director and CEO for a decade.

How The Cookie Crumbled

1989: BSN Group (later renamed Groupe Danone) and Rajan Pillai take controlling stake in Britannia. Sunil Alagh appointed MD
1991: In September, Pillai sacks Alagh. Executive committee formed to run Britannia
1993: Pillai defaults on payments to creditors. Nusli Wadia helps Danone wrest control from Pillai. Wadia and Danone become equal promoters in Associated Biscuits International, an unlisted joint venture in the UK with a controlling interest in Britannia. Wadia takes over as chairman; Alagh reappointed as MD
1995: Britannias turnover stagnates at around Rs 400 crore-500 crore. Wadia and Danone rope in consulting firm Shining Strategic Design. Danone proposes a new water and yoghurt business. Wadia opposes, says it will impact Britannias core business
1997: Britannia launches glucose biscuit Tiger aimed at the market leader, Parle G. The biscuit industry is de-reserved. Britannia enters the dairy business. Gets a new logo and slogan, Eat Healthy, Think Better
1999: Alagh renews 5-year term as managing director and CEO
2001: Danone sets up a fully-owned subsidiary in India. Britannia pays Rs 30 crore to acquire trademarks Kwality and Chef from Kwality Biscuits of Bangalore. Also agrees in principle to acquire 49% of Kwality Biscuits. Wadia tries to bring Britannia under his group identity. Alagh resists
2002: Nusli Wadia and Danone transfer their 45.34% stake to a joint venture AlBH. Britannia transfers its dairy business to Britannia New Zealand Foods, a JV, for Rs 155 crore. Announces Rs 92-crore buyback
April 30, 2003: Company secretary Ravi Mannath issues a press release stating that Alagh will not be renewing his contract in February 2004. Reports float of a growing feud between Wadia and Danone
June 4, 2003: Britannia board sacks Alagh with immediate effect

Mr Alagh became the managing director at the time the Nusli Wadia-Groupe Danone combine ousted the late Rajan Pillai to take control of Britannia Industries. Mr Alagh was suspended from the company by Pillai while the battle for Britannia was on. During Mr Alaghs tenure, the dairy business was hived off into a 49:49 joint venture with New Zealands Fonterra in 2002. However, this deal was criticised by analysts because Britannias joint venture partner Danone was itself a dairy powerhouse.

In a major branding exercise, the entire range of Britannias dairy products, including milk in tetrapack, cheese and butter, was rechristened Milkman from Zip Sip. Mr alagh is also credited with the success of biscuit brand Tiger, a glucose biscuit, which contributes nearly half of Britannias biscuit sales. However, he hasnt able to repeat the same success with other brands.

Some observers have also expressed concern over the companys acquisition of the Kwality biscuit brand. With the dairy business hived off, Britannia is returning to its basics by focusing on biscuits, something the company hopes will treble its turnover to around Rs 3,000 crore (Rs 30 billion) by 2005. Its other diversifications, including cakes and breads, are yet to achieve critical mass.

The termination of Mr Alagh from Britannia is forcing analysts and industry people to question -- who next and what will happen to the core brands. While it is too early to predict about the affect on the Britannias brand, analysts say it depends a lot on Mr Alaghs move.

As an analyst tracking the FMGC sector put it: "A month is too early to expect any changes in Britannias market share. The brands will see some impact if Mr Alagh joins a competitor. But, in the long run, Britannia is bound to see some adverse affect."

Mr Alagh has also won kudos for promotion of Britannia brands. "We would not have seen innovative means of advertising like Laagan without Mr Alagh," added another analyst.

"Though the brands may not see a sudden decline in sales, Britannia sales will see a drop in the long run. Brand building is a very important exercise in the FMGC sector and Britannia will definitely miss Mr Alagh in the whole exercise," cautioned the analyst.

While there has not been any drop in sales during the last one month, the companys market share dropped marginally in the third quarter last year from 46.5 per cent to 45.2 per cent. One of the main drivers of growth Marie biscuit, along with Cream Treat, Good Day, Milk Bikies, has been losing market share to other brands. However, top-end brands -- such as Maska Chaska -- are said to be doing well. The company has reportedly not been able to meet the demand for Maska Chaska.

Britannia has maintained market leadership with a 40 per cent volume share and 48 per cent value share in the organised sector. The company has been aggressive in new launches and marketing during the last two years anticipating the competition from multinational companies into this highly profitable sector.

However, it is not the multinationals, but the smaller local players, which are posing bigger threats. The multinationals have launched their products at a premium and hence have not eaten into Britannias shares. The company is facing stiff competition from regional players like the decade-old Surya Food, the marketer of Priya Gold Biscuits.

Priya Gold has stronghold markets in Uttar Pradesh, Punjab and Haryana, plans to take on Britannias sale in semi-urban markets. Parle has also launched several products across various price points which in addition to local players have intensified competition, said analysts.

Britannia plans to double its sale of cream variants under Cream Treat by March 2004. Higher margins from Treat are likely to help Britannia shore up its bottomline in future, even as the company plans to plough back a part of the profit to boost the brand to sustain a longer journey.

The company plans to foray into the southern market by the end-2003, beginning with Karnataka. Britannia subsequently intends to set up a manufacturing unit in the state. He added that the companys immediate priority was to double its turnover - to Rs 300 crore - in the current fiscal.

Britannia is the market leader in the organised biscuit and bakery product market in India. Biscuits contribute to more than 80 per cent of Britannias total turnover. Other products include bread and cakes. Britannia diversified into dairy products in 1997 with processed cheese and dairy whitener. The portfolio was expanded with the launch of butter, pure, flavoured milk in tetrapacks and UHT milk.

The biscuit market in India is estimated to be 1.1 million tonne per annum, valued at Rs 35 billion. The unorganised sector accounts for over 50 per cent of the market. The market has been growing at a CAGR of 6-7 per cent per annum. Per capita consumption of biscuits is estimated at a low 1.5 kg -- reflecting the huge potential for growth. Manufacturing was reserved for small scale upto 1997, which put large players at a disadvantage.

In the organised sector, Britannia and Parle are the only national players with dominant market shares. Other organised players include domestic players like Bakemans, Champion, Kwality, Priya and MNCs like SmithKline Consumer, Kelloggs, Sara Lee, Heinz, Excelsia (Nestle) and United Biscuits.

Britannia recently acquired Kwality Biscuits, gaining a strong foothold in the southern market. Bread is one of the most widely consumed processed foods in the country. The market is estimated at 1.5 million tonne per annum.

The industry is dominated by a large number of players in the unorganised sector, which accounts for over 80 per cent of the market. Britannia Industries and Modern Foods (now owned by HLL) are the only two players with a national presence in packet slice bread segment. There are several other regional players who have significant market shares in their respective local areas. Britannias bread business has been slowly declining and registered a 9.4 per cent year-on-year volume de-growth last year.

Apart from the much-advertised biscuit business, Britannias dairy business has been growing at a fast pace on a low base. Volume growth was 50 per cent and value growth was 47 per cent last year. In value terms, the dairy business contributed to 10 per cent of turnover last year.

Prior to the entry of Britannia, the organised market for dairy products like butter and cheese was dominated by the regional milk cooperatives, such as Amul, Vijaya, etc. Imported brands are also freely available in the country today. In the organised domestic segment, Amul remains the dominant player and will continue to be a stiff competitor, given its sourcing advantage and market savviness.

Britannia hived off its dairy business into a joint venture with New Zealand-based Fonterra Cooperative. At present, BILs market share is 40 per cent in the branded biscuits segment.

On the impact of Mr Alaghs exit, says a company official from BIL: "Nothing at all. Our Tiger brand is doing well both in rural and urban markets. So are our other brands like Maska Chaska. When you have successful brands, nothing else matters. Whats important is to maintain the quality of our products."

(With inputs from Lalitha Srinivasan)