Financial Case-Study

1. Britannia cutting costs to fight
price rise
Presented By
1.Rangeet Mitra

2. August,2012

3. August,2012
• The latest increase in input costs is likely to add pressure on profits of
biscuit makers
• Packaged food maker Britannia Industries Ltd will raise prices across products,
which include Good Day and Tiger biscuits, because of a steep rise in the costs
of wheat and sugar
• Commodity price increases of the scale that we are currently seeing will
definitely get passed on to the consumer
• Wheat prices increased in July on the back of a global rally in that commodity
fuelled by a drought in a key agricultural region in the US. Sugar prices also
rose in July because of deficient monsoon rain.
• competitors, which include Parle Products, Kraft Foods Inc. and ITC Foods with
its Sunfeast biscuits, will also have to pass on rising costs. (The rise in costs)
will definitely affect anybody who produces biscuits or bread. The only
difference may be the timing.

4. August,2012
• Britannia is a case in point. While its sales doubled last year from 2008 levels,
profit was little changed. The company’s volume growth, too, has slowed for the
past five straight quarters. The biscuit industry’s growth has also dropped to 16-
17% over the past two quarters from the 20%-plus-rates earlier
• If Britannia is only looking to cover the Cost inflation, then sales volume may
not be hurt that much. But if Britannia is also looking at margin expansion
(through price increases), then I’d say the volumes would definitely take a hit.
So it depends a lot on the size of the price increases

5. Price War ?
• Creating low-price appeal is often the goal, but the result of one retaliatory price
slashing after another is often a precipitous decline in industry profits.
• Price wars can create economically devastating and psychologically debilitating
situations that take an extraordinary toll on an individual, a company, and
industry profitability
• Generally, price wars start because somebody somewhere thinks prices in a
certain market are too high.
• Price wars are becoming more common because managers tend to view a
price change as an easy, quick, and reversible action.
So price war is not a solution…..

6. Return Back to 2008

7. Britannia cutting costs to fight price rise
• Inflation, which recently touched a three-year high, has eaten into the profit
margins of domestic biscuit makers in the just ended.
• Volatility in the economy.
Effect :
• Britannia, Parle and ITC, are engaged in cost-cutting measures, especially in
the areas of manufacturing, logistics and distribution costs.
• The industry had to shoulder a 20 to 25 per cent increase in prices of inputs in
the last two years.

8. Managing Director’s view : Ms Vinita Bali
• Profit pool of the industry has shrunk due to
inflationary trends. This year too, it will be a
challenging and tough year for us
• We have been pursuing mix management
initiative vigorously. What we did was to
increase the price of some of our products,
especially the high-end ones, and left prices
untouched for other products. . For example,
we had taken a price increase on our
NutriChoice Digestive brand from Rs. 30
to Rs. 35. We also took some price increases
on our cream products

9. Market share
• Inflationary trends impacted its market share.
• In spite of the price increases, the company was able to maintain its market
share in a fiercely competitive environment.
• In fact Britannia gained market share for its Tiger brand, which included
glucose, cream, coconut and recently-launched banana variant.
• Enhancing the portfolio of varieties under the Tiger brand is intended to
give consumers more reasons to buy Tiger.
• Britannia’s share in the domestic biscuit market is about 35 per cent, out
of which the share of its glucose brands is about 18 per cent. The growth
in the biscuit market in India itself has reflected a decline in the last fiscal

10. Growth rate
• In the first half of the year, the growth rate was about 15 to 16 per cent, while in
the second half, if you look at the sequential growth month-on-month, it came
down to 10.5 per cent.
• Taking up bulk supplies to alternative and in-transit avenues of consumption.
• “We are focusing on bulk supplies at railway platforms,
canteens and BPO offices. We have also launched
smaller packs with two to three biscuits to facilitate
quick eating at these consumption avenues. We have a
separate market structure and sales force to handle
these alternative distribution channels”

11. Per capita consumption
• India’s per capital biscuit consumption was still at about one kg, as
against 2.5 to 3 kg in Sri Lanka and 2 kg in Vietnam.
• The company invested about Rs. 200 crore in the last two to three years
to increase the capacities of its various plants such as its cake plant in
the North East.

12. Conclusion
• Diversification of the business
• Increase the Biscuit Market.
• Strengthen Retail-Sector.
• Changing the Eco-System of Work.
• Initiating New Model.
• Replacing Old-strategies.

13. The END