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Pre-MBA/MSc Management Programme University of Bath

RESEARCH PROJECT D: CASE STUDY ANALYSIS OF BRITANNIA INDUSTRIES LTD.

By Boyu Sun (Sunny) 139167241 Daoqin Gao (Dora) Hezi Zhang (Hezi) 139271799 Worawee Khernamnuai (Wee) 129419279 Ya-Chuan Yang (Iris) 139158205

Tutor: Mr. Neil Hicks Word count: 1,941

Abstract

Britannia was the largest bakery manufacture in India. Due to a successful initiative the company intended to scale up the manufacture, distribution of social products and sustain the business. Thus, the CEO started to make a policy to develop and expand the social products. Based upon the movement, we found out the shortcomings including profit decreased, limited marketing strategy, and potential competitors. Therefore, the given recommendations were saving costs, cooperation with government or outsourcing, brand management and improving the quality of products.

Table of Contents

Introduction Background Methodology Findings Internal Environment External Environment Conclusion Limitation and future research Recommendations Internal Environment External Environment References

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Introduction Britannia was a bakery manufacture in India. In 2009, the company had started to supply specially fortified biscuits to small groups of school-going children. The movement offered the company an awareness of the widespread national problem of malnutrition and ambition to extend the brand. However, Vinita Bali, chief executive officer, faced two challenges- how to scale up the manufacture and distribution of social products, and how to develop the social product into a sustainable business. In order to overcome the difficulties, Bali made several important policies. The report analyses those main plans in finance, marketing, competition and external environment factors.

Background Established in 1892, Britannia was the largest manufacture of bakery products in India, with 28-per-cent share of the$3- billion Indian biscuits and bread market. The company was known for launching variation of existing and new products to cater to customers. Thus, product innovation leads Britannia stand out among the competitors. In 2010, the Indian government operated the Middle Meal Scheme, providing cooked nutrient meal to primary school children, which aimed at combating malnutrition- the most important problem in Indian even across global. Britannia joined the policy, offering specially fortified biscuits to children and revealed the importance of social products. Therefore, the company attempted to scale up the manufacture and distribution of social products and even develop them into a sustain business.

Methodology Both qualitative and quantitative data were applied to analyse the problems that Britannia is facing and provide recommendations The qualitative data including: Case study from the University of Bath Online journals Basic SWOT analysis of Britannia Industries Ltd.

The quantitative data involves: Financial exhibit and graphs of Britannia

Internal problems: Financial strategy; Marketing strategy

Internal recommendations: Decrease producing cost; Brand management

Britannia
External problems: High requirement; Fierce competition External recommendation: Cooperate with stakeholders; Outsource; Improve quality; Keep balance of products; Gain public supports

Findings Internal environment Financial issue The financial report of Britannia Industries Ltd. between 2007 and 2011 showed that although the income rate was increasing every year, net profit remained between 3%-5% (See figure 1). The main reason behind this scheme is high expenses. In 2007, the total expense is 21,733 million Rupees. Then double in 2011 to 44,829 million Rupees which is 68% of total expense. Note that the highest expense is raw materials such as sugar, flour and oil (See figure 2). Not only the cost of material, but cost of labours and distribution also increased every year because Britannia plans to invest labours in urban areas which costs high salary rate and expand a large number of new stores which costs high distribution cost. Even through Britannia faces the financial problem, they still want to extend the brand and expand the supply chain. However, Britannia production capacity decreased every year from 163,500 in 2007 to 152,100 in 2011 which is inconsistence with their expansion state. According to Freidenfelds (1980), failing to consider production capacity while expanding the business might lead to operation management issue which can pull the company to financial crisis. It could be claim that if company wants to expand the business, it should aware of the financial background and calculate the financial ability before starting new projects.

Unit: Indian Rupees Millions

Britannia Industries Performance


100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2007 2008
Income 28,096 22,951 21,733 25,990 34,599 32,817 38,311 36,917 1,030 46,700 44,829 1,774 1,551 1,514 1,342

2,000 1,750 1,500 1,250 1,000 750 500 250 0 2009


Expense

2010
Net profit

2011

Figure 1: Britannia industries performance between 2007 and 2011 (Units: Indian rupees millions) (Source: Company annual report)

Britannia industries expenses


4% 5% 6% 7% 68% 7% 3%

Cost of materials Carriage, freight and distribution Other operating expense Depreciation and interest

Advertising and sales promotion Conversion charges Employee costs

Figure 2: Britannia industries expense in 2011 (Source: Company annual report)

Marketing strategies The trend of Asia-Pacific biscuits market increases every year. The market grew by 3.9% in 2011 and reaches a volume of 1,934.5 million kg (See figure 3). That is a challenge for Britannia to build a sustainable business in India biscuit market. However, Indian has a large number of malnutrition. As Gillespie (2003) points out that India has many manufactures of food and beverage but pregnant woman and children still suffer from malnutrition. This might be viewed as either a problem or an opportunity for Britannias marketing strategy which did not consider enough to educate fortified products biscuit and did not offer enough product varieties to Indian customers. Year 2007 2008 2009 2010 2011 Million kg. 1,659.3 1,724.8 1,791.8 1,861.7 1,934.5

Figure 3: Asia-pacific biscuits market volume between 2007 and 2011 (Source: Marketline)

External environment Cannot meet the need at the national level According to the case, in India, there are several limitations for the development and expansion of social products. The most important reason is the speed of its implementation cannot meet the need at the national level. There are four aspects

about this problem: Firstly is lack consciousness of malnutrition. Since malnutrition is not infective and cannot be transmitted, people in India do not have general conscience and consciousness of malnutrition. Moreover, malnutrition is not only associated with poverty, but also related to gender, age and other factors. Secondly is small share in food market. According to the case, the India food and beverages market was valued at almost $300 billion in 2009, while the health and wellness food products only accounted for about $725 million. Therefore, there is still a large demand in the health food market. The third issue is capacity limitation. Although cooperate with various stakeholders, such as government agency, the corporate sector and community can improve productivity and reduce costs, the company needs more upfront investments and larger business scale. The last issue is innovator of the health food market. As being the first India biscuits company, Britannias first step in the society food industry has significant influences on the market and followers, especially the potential risks, for example, how to attract customers and how to make a strategic marketing plan successfully.

Intense competition Competition in bakery products was fierce in India, not only coming from local companies, such as Parle Products, ITC, and Surya foods, but also international companies, such as GlaxoSmithKline, Kraft Foods as well as Pepsico. These global

companies along with having greater financial resources also have substantially greater marketing and distribution resources. Aggressive marketing and other competitive action pursued by these large companies, besides innovative products and price wars by national players, would make it more difficult for Britannia to sustain its leadership position.

Volatility in raw material prices The primary materials used by Britannia to produce and manufacture its products are wheat, sugar, fats and oils. On a global and regional basis, these raw materials are susceptible to significant price fluctuations due to supply and demand trends, transportation costs, government regulations and tariffs, changes in currency exchange rates, price controls, the economic climate, and other unpredictable circumstances.

Conclusion There is no doubt that fortified biscuits are the solution for the nation-wide malnutrition even though most people lack the recognition on the importance of this food. However, if the company cooperate with the government and educate the customers to know fortified biscuits, it would be a bright future for Britannia to sell this product while competing with other counterparts. It is possible that Britannia scale up its business from India to the world and nutritious products could be a sustainable business based on the large scaled selling.

Limitations and Future Research Although this report has prepared carefully and achieved most of its aims, there are still some inevitable limitations. First, since most data of this report is based on this case, the completeness and accuracy of the findings is unavoidably limited. Second, due to the limited time, this report focus on the qualitative analyses of Britannias marketing strategy and financial issues mostly. In order to provide appropriate recommendations, a strategic plan about how to scale up Britannias social products successful and how to sustain its business with product development and expansion should be devised. Additionally, findings and recommendations need more quantitative and qualitative analyses to provide the reasoned evidences.

Recommendation Internal environment To begin with the recommendation for the internal problems, the solution for problems of this company is also significant for its development in the future. First of all, saving cost would be a fast way to deal with the financial issues. Britannia industry could cooperate with the sugar supplier and flour companies to lower the price of these materials. In addition, to cut the payment on employees, the biscuits manufacturer may recruit the workers from rural location settings where the salary is much lower than in the urban area. Moreover, choosing an appropriate location of the biscuit factory also has an impact on the fee of distribution. More precisely, if the factory is closed to the school where the students are the targeting market, the time

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and the cost on transportation will reduce obviously. As a result, all the cost decrease, the profit will increase. Having addressed the financial issues, next internal recommendation is about the solution for the marketing issues. The core of the marketing strategy is the skills on brand management. As known from the research, the flavour of this kind of fortified biscuits is limited even though it is really healthy and nutritious. As a consequence, the department of food producing should explore and experiment new flavour for meeting the demand of consumers. Except the repeat customers, it is still a large potential market in the group of who has no recognition of the importance of fortified biscuits. Therefore, this company should educate the public to know the malnutrition and to trust the fact that this product is the solution of malnutrition. This educating is a hard work for only a company due to the large scale and the long term. However, it would be a social campaign if both the government and the company participate in this educating. Then, there would be a number of consumers to purchase these biscuits in a national-wide level.

External environment As has been indicated in the finds, there are four main problems faced with the Britannia Industry. It seems to be essential for the company to solve the problems in order to scale up the business and build the sustainable development. The recommendation, therefore, is to solve the external and internal problems face with Britannia Industry.

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Initially, the company is likely to benefit greatly from the good relationship with the stakeholders according to the theory of the stakeholder. The existing cooperation with the government like Integrated Child Development Service and Midday Meal Scheme are aimed to provide nutritious food for young children and lactating mothers. The company can also strengthen the relationship with community-oriented organizations. Furthermore, outsourcing may enlarge their producing capacity immediately as well as decrease the operational cost. These two methods might be efficient to enable the implementation to meet the need of the national level. Then, it is vital for Britannia to gain competitive advantages. There are three ways to win over the competitors. Firstly, improving quality of the products is an effective way appeal to more consumers. For example, the company can improve the taste of the biscuits or add more minerals into the healthy food. Secondly, keep a balance of the low-price and high-price products. It is shown in the figure 4 that the gross margin of high-price products is 20 times larger than that of the low-price, therefore, the company may gain more profits by exploring high-price products. Meanwhile, appropriate amount of the low-price products and satisfy the low-income consumers, which might also make Britannia more competitive. Another way to beat the competitors is to gain more support from the government by conducting projects. It may enhance the reputation as well.

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Gross Margin
1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Low-price Brands Mid-price Brands High-price Brands 0.08 0.36 1.6

Figure 4: Britannia industries margins of biscuits and cookies (Units: $ per kg) (Source: Company files)

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