Of course, Danone was planning to sell its stake in Britannia for quite some time. About two years back, it sold its global biscuit business to Kraft Foods for euro 5.3 billion, enabling the American company to add the franchise to its Nabisco cookies and crackers portfolio. That deal did not include Danones equity interest in BIL and triggered speculation about the future of its investment in the company. Our priority is to develop a fresh dairy and beverages business in India, Groupe Danone secretary general Philippe Loic Jacob was quoted saying in 2007. The question is why now Prima facie, it is the price. Said an analyst based in Mumbai, Probably, the company got the right price, after much haggling with BIL. It is possible that BIL is paying a premium. Danones exit from the Indian JV is a win-win for both parties whove spent valuable management time in courts. Post-Kraft deal, Danone doesnt have interest in biscuits globally; thus Britannias core business no longer holds the fancy of the French firm. It can now pursue a fresh dairy and beverage business in India with a clean slate. It had earlier decided to go it alone for the launch of Evian bottled water in India via a 100% subsidiary. In 2005, it formed a joint venture with Japans Yakult Honsha to manufacture and market probiotic drinks in India. In December 2007, Yakult, a probiotic health drink hit shop shelves.
For BIL, its both an exciting and daunting period. Above all, it has to focus on broadening its menu. It is over-dependent on one product, with biscuits accounting for 90% of its turnover last year. For fiscal 2007-08, BILs gross turnover, at Rs 26,679 crore, grew 13.6% and operating margins increased 7.5%. The company posted a net profit of Rs 1,910 crore, a year-on-year increase of 77.5% over Rs 1,076 crore in FY07. Arguably, those would be respectable figures, if its portfolio werent skewed towards one brand.
Tiger is Britannias highest selling brand, accounting for 30% of the companys sales in 2007-08.
The dairy business, which BIL entered in 1997 and spun off as a JV in 2002 (with New Zealand's Fonterra Group) yields barely $36 million in revenue, according to reports. Its bread, cake and rusk together rake in another $68 million. And competition in all of these segments is snapping at its heels. That kind of dependence is perfect recipe for disaster, especially in a market where entry barriers are not too high and competition is really hotting up. Think Colgate-Palmolive. Its single-minded focus on the oral-care market began to threaten its very existence. Until it aggressively scouted for opportunitites in the larger personal care space with Palmolive.
It cant ride the pony too long and BIL knows it. BIL has, on more than one occasion, said it wants to significantly ramp up rest of the portfolio.
Plan and products, Britannia has, but only time will tell just how far itll take the brand.