During this entire year, biscuit and bakery major Britannia Industries will celebrate 25th year of one of its iconic brands, Good Day.
While there would be several events for consumers to enhance their engagement with the company, for investors the year might not turn out so good.
The current year would be difficult on several counts for the company as it would be investing heavily into setting up new plants for greater control on supplies and logistics even as it sees growth momentum in branded packaged foods industry slowing down and commodity inflation weighing heavy.
Britannia has detailed in its just released annual report a rather grim picture of current and coming years.
“New investments in capacity creation capability to handle a distinctive and differentiated range of products are being made in greenfield units that will lead to greater ownership of manufacturing capacity by the company. This will lead to significantly higher capital investments over the next few years as new greenfield units are created, owned and operated by Britannia,” the company said in its report.
In later part of 2010-11, capacity was added in several existing manufacturing units while two new units at Hajipur in Bihar and Khurda in Orissa were commissioned.
New capacities would be created even as Britannia, by its own admission, is bracing for a slowdown in consumption of packaged foods. “In the domestic market, the company expects the growth momentum in branded, packaged foods to continue, with a relative slowdown in the rate of growth, 12-15%, in the near term. Profitable growth will also be challenged by the volatility and uncertainty in commodity prices, together with the inflationary impact of a weaker currency for imported products like palm oil.”
Not only palm oil, continued inflation in almost everything that goes into making a biscuit, cake or even dairy products has been going up for quite some time, hurting Britannia hard.
Prices of milk, for example, went up by 17% during the year, the report said. To combat rising commodity inflation, Britannia is now cutting costs wherever it can.
“Company addressed its cost challenge by continuing to intensify cost effectiveness and efficiency initiatives in a special programme that spans the entire value chain. Over 350 projects were taken up as part of this programme in 2011-12 and covered every function and region,” it said.
Managing costs has emerged as the key focus, not only to fight commodity inflation but also to compete at the lowest rung of the value chain where large players compete fiercely driving unit pack prices to as low as Rs 5.
This, to a large extent, prevents companies from exploiting untapped areas of the market where penetration of package foods is still low.
“Only 9% of food consumed in India is packaged and branded, thereby creating a large opportunity for growth. In an almost paradoxical situation, the pursuit of these large consumption opportunities and the migration from unbranded and loose products to branded and packaged food is often undertaken competitively by discounting categories that erode the overall profit pool.”