Britannia appears to be back at the peak of its powers under managing director Varun Berry. Operating margins have surged in the last two years, driving its growth rate consistently past industry average. The R6,500 crore food major has also seen its stock price nearly quadruple during this period. In an interview with Darlington Jose Hector and Anand J, soon after completing two years at Britannia, Berry talks about how he achieved spectacular success during such a short time while also dwelling on the company’s plans to enter new categories this year. Edited excerpts:

The packaging of biscuits is undergoing a sea change. Biscuit packets never used to look like this even as recently as five years ago…

Good packaging has been good for the business. With regard to macro-snacks, India is probably one of the largest. We have got that base. We have to now build a pyramid with nice cookies at the top, and India is ready for it now. It will not happen overnight but the recent launches indicate a move towards that. You can build only if the base is big and strong. I have seen that pyramid collapsing in many categories in many countries when built on a weak base.

Britannia has always enjoyed a strong presence in the biscuit market and now we have the option of going ‘premium’. Our latest products are marked R50 for 100 grams or R500/kg. The average price in India is R85/kg. A fairly large percentage of the industry’s sales comes from packets that cost R10, probably 50%. There is always an option of giving two cookies for R10 or R20. We should be looking at the price per gram as a value proposition.

You have completed two years this January. What was the brief when you joined the company?

When I joined as COO, all the operations, sales, marketing and R & D teams were reporting to me. Then in May, I took over the India business as a whole and that was 95% of the total Britannia business. There was no brief from the promoters. There was an agenda that I had drawn. January is the time we write our annual plans and I jumped into writing one that year. It is usually presented in March/April. The board liked the agenda and said I have the right balance to pursue and execute. We built an annual plan based on my 90-day plan and took that forward.

I wasn’t into strategising that much as the company’s strategy was reasonably tight. There were a few differences as to how the strategy had panned out. We decided to discuss those differences but the overall strategy was fairly robust. For me, the opportunity was in the building blocks. Some of it was not as robust as I would have expected in a company like Britannia. We went after those low-hanging fruits.

Can you please elaborate on that? What tweaks did you make to create a difference?

The first thing I did was to sit with the CFO and the commercial team. We looked at the last 15 years’ profit-and-loss account. There was a lot of yo-yoing with respect to the bottomline and we were at an 11% margin at one time—and that went down to as low as 1%. Even in a year when the prices were stable, the gross margins looked like a yo-yo. When I took over, it was around 3%. The topline wasn’t growing at the same rate as industry’s and we had been losing market-share; that was a complete no-no for me. Even worse, our fixed-costs were growing faster than our topline which, in a company like Britannia, where the gross margin was 18-20%, indicated a very dangerous trend.

Firstly, I wanted to make sure the topline grew at the same rate or faster than the industry’s. Second, I wanted to get our cost under control—material as well as conversion. And third, I wanted to get the fixed cost to grow at a lesser rate than our overall revenue growth.

The moves seem to have worked well. You seem to have worked out the right sales strategy.

We looked at the various components of topline growth. Our sales system had got weaker and we were not getting to enough outlets directly. We were lot more dependent on wholesale and that pushes up your costs as margins get diluted.

Second, wholesalers will never distribute the way you want. They sell whatever sells. They won’t push Tiger as Parle G sells better. In the cream segment, they will only push Dark Fantasy (ITC). Because of these issues, it was important to get the sales system in place. Our direct sales were declining and the proportion of wholesale had increased. We had recruited a lot of people and thus our costs had gone up. This made us restructure the entire business. We evaluated the role of indirect employees who were adding to the costs but had no accountability. We ended up removing 400 people from the rolls while building greater accountability. We brought down the proportion of wholesale in our product distribution by 6%.

Did you adopt a new hiring policy?

We had to decide between paying premium rates for experienced hands or going with young professionals. I went with the younger guys within the organisation who could step up, and today, they are doing a fantastic job. My mantra is we all work for the man on the streets, the salesman. So, all our work needs to be focussed on helping that salesman sell an extra kilo of biscuits. We were going to more outlets directly. We reduced our wholesale-dependence and made the system better and reduced costs as well. It was a win-win call, but also a difficult one. People told me, “We are dependent on wholesale and if we trim that, we will be dead soon.” I had my doubts, too. But we needed to simplify things for the sales guys. They can’t take complicated directions, as that will ensure they end up achieving nothing. By creating a binary system, we achieved a military kind of discipline.

How did you realign your marketing spends?

The other aspect about our topline was our marketing spend. We were spending money on 24 different brands and, as a result, we were fragmenting our budgets to a degree where each brand was getting very little money to back it. We can’t afford to go after so many brands. Oreo and Dark Fantasy were getting most of the marketing spend from their respective brand-owners. So, we focussed on just five brands. I think it paid off as we started to see threshold spending happening for these brands.

The other thing was the lack of innovation for quite some time. Our last new product was Nutri Choice, launched many years back. Many other brands came in during this period and achieved big success. But I wanted to start on this aspect only after we got our basics right. Now, we have started launching new products again. Britannia is growing faster than the market today—the market is growing at 7% and we are growing at 15%.

Let’s talk about your new R&D Centre in Bengaluru. What do you propose to achieve at the Centre?

For starters, it will pilot plans for a lot of the categories. We will try new recipes and see whether they work. This centre will look at what our new products should be and also what adjacent categories we should target. We will then test the market by checking with consumers on what works and be ready for the next five years.

What products are these? Will you also target the ‘health-conscious’ segment, considering that it is a thriving products-brand now?

If you look at it, Brittania is a brand that is right at the top. If we don’t enter new categories, we are not taking advantage of that brand-power. At the same time, we don’t want to diversify in a hurry. We will decide in what categories we have a ‘right’ to succeed, and that will be done after extensive customer surveys. We are also drafting a new strategic plan; that will be ready in the next 2-3 months.

The strength of the brand lies in certain products. We will make sure we remain within the boundaries set by the consumers, who might have set perceptions about the brand. Otherwise, we are not setting ourselves for success. To my mind, there are very few brands which can do salt and sweet. ITC is not a biscuit brand, it is a conglomerate. If I were to follow that model, I could produce tyres as well. But I don’t want to fragment my brand or have an unmanageable number of products.

Have you thought about health drinks?

We already have yogurt, but that is a small part of our portfolio. We are strong in biscuits, we make cakes, rusk, dairy, powder-milk, ghee, butter and many more products. But we are not as strong in any of those categories like in biscuits. We need to decide on those for which we will be playing hard. We made baked snacks in the past but found out India is not ready for them. Consumers go for snacks if they are feeling indulgent, and why would they eat baked snacks if there are tastier options? Isn’t it better to come up with a bridge product? Our Good Day Chunkies is a case in point. It is a cookie that also has the appeal of a chocolate bar. For instance, Kurkure is another bridge product between namkeen and Western snacks, and it hit the bulls-eye.

Share prices have been going up consistently for two years. It is now hovering around R1,880…

Frankly, I don’t even look at the share prices. I do what is best for the business. If it is in the right direction, markets will reward us. And if the costs come down, we will give the benefit to the consumer and we have already done that for a few products.