Britannia’s (BRIT) recent launch of lower unit packs (LUPs) in the creams segment, under Treat JimJam brand, offers ‘value for money’ and also caters to customer aspirations. The creams category is large, Rs 1,800 crore and highly profitable, net margins 2x that of category, but has so far been urban-focused. We note that the company has already done well with LUPs for its premium cookie brand Good Day – also in rural areas where demand for LUPs is good. Thus, creams LUPs should help the company to penetrate well in the rural markets and drive incremental volume growth. A combination of efforts, rural distribution expansion, dedicated focus on five key states in central India, new products and new pack sizes, over the past few years has helped BRIT to double its rural sales to Rs 1,556 crore. The company sees huge headroom for growth in rural markets, and expects revenue contribution from rural to increase to 30-35%, from ~20% now over the next 2-3 years. Distribution expansion for BRIT has been massive, with its direct reach doubling over the past three years to 1.56 million, overall reach of 4.7 million outlets at end-FY17, including 0.7 million outlets added over the past year.
Its direct reach as of Q2FY18 stands at 1.8 million outlets, second highest after HUL), implying addition of ~0.24 million outlets in H1FY18. BRIT has also set up 13,000 distribution points across rural areas to cater to this market in a better way. We believe that the company should not be benchmarked against Parle’s reach of 5.8 million outlets, BRIT is narrowing the gap year after year on total reach, in terms of direct reach, BRIT already is twice as large as Parle, given that biscuits is a low-cost/high-velocity consumption product and that there is potential to boost the reach to ~9 million outlets. Improving market share in the Hindi belt, Rajasthan, Gujarat, Uttar Pradesh and Madhya Pradesh, is the second key priority for BRIT. The company’s market shares are still in early teens in these states; it believes that there is still a long way to go. Notably, BRIT gained 170 bp market share in these weak states in central India in Q2FY18. Distribution expansion, along with introduction of LUPs of its products, have been successful in the hinterland, addresses one of our key erstwhile concerns that the imminent rural revival would lead to Parle clawing back some of its market share losses to BRIT in recent years.
