Britannia’s big bet on dairy yet to pay off


 Since Britannia Industries Ltd started selling dairy products two decades ago, the company has put much store in making the business its next big thing. However, despite ploughing lots of money into it and changing several executives, the dairy business constantly falls short of the company’s expectations, contributing less than 5% of its annual revenues.

Britannia’s biggest problem is that it has been unable to dent the dominance of regional companies such as Hatsun Agro Product Ltd and Tirumala Milk Products Pvt. Ltd and co-operatives like the Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF) that owns the Amul brand. Milk procurement is also a challenge as it is scattered and mostly unorganized. Parts of the dairy market, especially in Gujarat, are also tied to the politics of the state.

This leaves Britannia’s new dairy head, Venkat Shankar, with a massive challenge. Shankar joined the company in April from HT Media Ltd, which owns this newspaper, where he was executive director. He replaced Sarad Garodia, who quit Britannia last August and started a milk aggregator firm of his own called Happy Cow Dairy Co. Pvt. Ltd.

Shankar’s appointment marked the third time Britannia has changed its dairy head in as many years. He is tasked with accelerating sales growth in a very competitive market without compromising too much on profitability.

To put things into perspective, GCMMF earned Rs29,220 crore in provisional revenues for the financial year that ended 31 March on the back of the popularity of Amul. In February, Britannia managing director Varun Berry estimated that the company’s dairy business had the potential to grow to Rs1,500 crore annually within five years from Rs400 crore currently.

“It is very tough, there is no doubt about it, for any company to compete against Amul, which has now become very large on all fronts—distribution-wise, product range-wise and brand-wise. Britannia, being a large bakery/biscuit company, they have not been so tuned to the dairy dynamics,” a consumer goods industry expert said on condition of anonymity.

Britannia will need disruptive and first-to-market products to succeed in the dairy space, said Abneesh Roy, senior vice-president at Edelweiss Securities.

“It has strong brand equity in cheese, curd and ready-to-drink products but it was not competitive as it was outsourcing (production),” Roy said, adding that the company will need to invest in the back-end also to really make a mark in the long run and compete with the likes of Amul.

Expanding the dairy business is important for Britannia as it has been looking to reduce its dependence on biscuits, its largest revenue earner. Under Berry, who became managing director in April 2014, Britannia has rapidly expanded sales and profits, gaining market share in biscuits. Over the long-term, biscuits is seen as a category that may struggle to expand significantly given changing consumer preferences. So, despite Britannia’s struggles in dairy, the company is expected to continue its attempt to crack the business.

“Given that India is a dairy-consuming country, the potential is far bigger than in biscuits in terms of the quantum. Earlier we used to make yogurt at home and now we have graduated to buying branded yogurt from supermarkets and even getting it delivered to our doorstep. Britannia is absolutely right in going after it,” said Harminder Sahni, managing director at consulting firm Wazir Advisors.