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Losing its Crispiness

Volume growth for Britannia Industries has tempered down from high single digits to 3-4 per cent in the last quarter…

There is only so much that price hikes and grammage reductions can do to shore up sales. In reality, companies cannot keep on fighting the recession and continue to come out on top quarter after quarter. Biscuit manufacturers, like other FMCG incumbents, have played this game and are now the first ones in the FMCG pack to witness the malaise set in.

Though revenues for the biscuit major were up 11 per cent in the June 2012 quarter, the story is not in sales but in its volumes. Volume growth has tempered down from high single digits to between 3-4 per cent in the latest quarter – marking its fifth straight sequential decline. And things could stay that way.

Poor monsoon expected to impact discretionary spending is beginning to show, especially in rural India. Rural India is estimated to account for half of Britannia sales. Britannia is not alone in this slump. Arch rival and glucose biscuit king Parle too has reportedly been hit by a slowdown in sales since June this year. Industry insiders estimate that as compared to the historical growth of 14-15 per cent that biscuits were growing at in the last couple of years, growth in the current may at best be in the high single-digits. That could spell trouble for all players including Britannia.

Britannia reported gross margin expansion of 380 basis points (y-o-y) in its June quarter mainly on account of lower food inflation in prices of wheat and sugar. But the going may get tougher ahead. Wheat and sugar prices have rebounded and any further price hikes may impact volume growth in an already precarious environment. Wait for industry headwinds to clear.