FORTUNE IN COOKIES

This January Vinita Bali, Managing Director of Britannia Industries, got an unwelcome New Year gift. Kraft Foods, the $49.2-billion foods giant, was suing Britannia over a new sandwich cookie, Treat-O, the Bangalore company launched a month earlier. Treat-O, the world’s No. 1 confectionery maker charged, was a copy of its popular brand, Oreo.

The case, now pending in the Delhi High Court, has the makings of a bare-knuckle fight. But the biscuits industry is not surprised. When what’s at stake is a piece of a`12,600-crore market, expanding at a rapid 10 per cent annually, regular business can get nasty. Not only is India’s biscuits market the largest by volume, the category also makes for the biggest piece — more than one-tenth — of the domestic fast moving consumer goods market.

The business has so far been dominated by three players— Parle Products, Britannia and ITC. But battlelines could be redrawn as a raft of multinationals led by Kraft and PepsiCo make a beeline for India. In the past year alone, Britain’s United Biscuits and GlaxoSmithKline Consumer Healthcare, or GSKCH, have had several launches, while the go-national plans of some regional players have taken off. French foods giant Danone, too, is waiting in the wings.

And, the range is expanding: if United Biscuits has come up with an assortment of products under its McVitie’s brand, GSKCH has introduced Horlicks biscuits for toddlers in animal shapes, and extended the Horlicks range to new options like crunchy cornflakes and bubblegum flavour. Britannia has expanded its NutriChoice range from plain vanilla digestive biscuits to spice-flavoured and diabetic options. ITC too has come up with new variants like Marie Light and Marie Light Orange.

Sales of biscuits have risen. And it helps that they already have mass acceptance. Pinakiranjan Mishra, Partner, Retail and Consumer Practice, at consultancy and audit firm Ernst & Young, thinks biscuit manufacturers do not face the sort of hurdles breakfast cereal makers did when they entered India in the 1990s. “Biscuits are seen as a healthy snacking option,” he says.

High Glucose Tolerance

Market share estimates vary depending on which company you ask, but according to market research firm Nielsen, Parle Products, for the first time, snatched the top spot by volume sales from Britannia in the last quarter of 2010. Parle, with a dominant share in the glucose biscuits category, has been ahead in terms of revenue share for some time now (see Tasty Bites). Glucose biscuits refer to plain biscuits made of wheat, sugar, vegetable oils and skimmed milk powder.

Both firms refuse to get into spe- cifics. “We have been ruling the market for many years in multiple categories and doing well in glucose, cookies, salty and cream segments,”says Parle’s General Manager(Marketing) Pravin Kulkarni. Britannia denies it has lost share and Bali claims it remains India’s No. 1 biscuits brand. “The share of glucose biscuits in the overall market is down from 31 per cent to 27 per cent,” she contends, referring to the biggest sub-category in the biscuits market, while declining to give a source for the statistic.

Though demand for glucose biscuits remains strong, “the segment has seen few product launches in the past two to three years,” says Raghavendra Rao, Consumer Markets Analyst with Datamonitor.

Still, what Parle has going for it is volume. Parle G, its glucose biscuit, is the top-selling biscuit brand by volume sales in the world, according to a Nielsen report. And with such scale comes pricing power: most Parle products are priced in the range of`4 to 6 for 100-gram packs, opening up new consumer segments. Sunil Alagh, founder of SKA Advisors and former head of Britannia, thinks the`5 packs made the “traditional chaibiscuit the most popular healthy snack option”. “Small packets brought in new buyers, who would have considered other foods earlier,”agrees E&Y’s Mishra.

Helping Parle is also its ride into the premium segment of creams, cookies and crackers. Parle’s 20-20 has built a 18 per cent share of the cookie market over three years, eat-ing into Britannia’s Good Day, whose share is down to 28 per cent from 33 per cent. In the past four years, Parle Kreams has captured one-third of the cream biscuit market, where Britannia Treat is down to one-fifth. Parle seems to have played its other cards well too. It has built an excellent marketing and distribution network. Of the total 6.5 million retailers across the country who stock biscuits, Parle Products has a direct presence in 4.7 million. Even the rest are mapped through wholesalers.

Others who do not enjoy that advantage are pushing into the more lucrative categories. The cookies segment — accounting for 10 per cent of the total biscuit revenues in India and dominated by Good Day and Parle Hide & Seek — has seen a flurry of activity. Besides McVitie’s and Oreo, other launches include the Voortman, Waitrose, Murray and Pepperidge Farm Inc varieties. The local offerings include Choco-Nut from ITC, Tiger Crunch from Britannia and Hide & Seek Milano from Parle, apart from goodies from smaller players like Saj Foods and Spencer’s Smart Choice.

The domestic players’ portfolios tend to mirror one another. While Britannia’s Pure Magic is being targeted by ITC’s Dark Fantasy, its popular Bourbon faces competition from Parle too. KrackJack, the oldest in the salt-and-sweet category, was revamped by Parle to stop Britannia’s 50-50 onslaught. This results in eating into one another’s market share, says Natasha D’Costa, Senior Research Analyst at Frost & Sullivan, a research firm. “As the market expands, established players will lose share to newer and nimbler rivals,”agrees Alagh.

Health biscuits, like digestive or sugar-free ranges, are also gaining ground. Bali believes this will be the next battleground — as consumers not only buy more biscuits but also become more health conscious. Britannia has fortified its offerings with additional proteins and fibre to lure this new buyer.

Thought for Food

Britannia is aware the biscuit is up for grabs and it needs a quick strategic shift to retain its market. “The Indian market will get more competitive and new entrants, especially MNCs, will bring in innovation,” says Bali, describing the challenges facing existing players. Britannia has launched at least 40 new products or variants in the past year, compared with around 20 launches in 2008 and 2009.

“We have been experimenting with new flavours,” says Parle’s Kulkarni. “We have appointed actors Ravi Kisan and Rituparna Sengupta as our Monaco brand ambassadors to catch more eyeballs in regional areas,” Kisan is a Bhojpuri actor and Sengupta acts in Bengali movies.

“We like to sell superior products,” says Chief Executive Chittaranjan Dar. “The market is not homogeneous… different consumers want different products at different prices.” So ITC, which grabbed a 10 per cent market share with Sunfeast in 2003 but made little progress after that, launched“at least a dozen new products or variants last year and expects to maintain the momentum”.

Despite its global heft, Chicagoheadquartered Kraft has been flying below the radar in India. “Oreo is one of our leading brands with global revenues in excess of $1 billion,” was all its spokesperson would say while pointing out that the cookie has been imported into India since the early 1990s. Experts like Alagh feel Kraft can piggyback Cadbury’s, which it acquired in January 2011 and use its strong retail network. Kraft is in talks with at least three local players as it finalises its India plans, say insiders.

GSKCH, which launched its biscuits business in India in 1992, decided to take on Britannia in the milk biscuits sub-category— biscuits that have milk as an ingredient in addition to all that goes into a regular glucose biscuit — with its Horlicks biscuits priced a notch higher. “We are the second biggest players with a 20 per cent share in this sub-segment. We have already overtaken ITC’s Sunfeast Dream Cream in the `220-crore fruit cream segment, with the launch of bubblegum and orange cream range flavours in September,’ says Shubhajit Sen, Executive Vice President, Marketing. GSKCH is eyeing small but profitable areas to dominate and be a health motivator. Both these market shares relate to the December quarter as per Nielsen data estimates.

United Biscuits is available in 125 cities, according to India President Jayant Kapre. “We are not testing the waters. We are very much in them…We have captured almost 25 per cent of the digestive segment with McVitie’s,” he says.

Australia’s Unibic has tied up with Food Bazaar to launch a private label called Tasty Treat for the retail chain. There have been media reports that domestic consumer goods firm Marico could acquire the business to make its entry into the biscuits market. Sen and Marico declined to comment.

PepsiCo India has taken the spicy route. Aliva — a cross between Indian savouries bhujia/ matthi and biscuits — was launched in June 2009. The “protein-rich” offering combines wheat and lentils. PepsiCo plans to go further by extending the Quaker brand to oats cookies. “Our play in biscuits will be led by innovations rather than any category definition,” says Vidur Vyas, Marketing Director, PepsiCo Foods India.

Growing Appetite

The biscuit boom has also emboldened K.D. Paul, owner of Bisk Farm, once manufacturer and distributor for Britannia, to hunt for fresh pastures. Paul, who until recently focused on the East, wants to go South with his Butter Biscotti and Just Ginger biscuits. He has bought land near Bangalore and hopes to turn it into Brisk Farm’s southern hub. “We are within touching distance of Britannia in the East and want to replicate the success down South,” says Paul.

Bisk Farm is not the only one wanting more. Alagh, the former head of Britannia, believes there is a viable role for regional players like Priyagold, Cremica and Anmol. Demand from rural markets, accounting for half the biscuit sales in India, is growing at 20 to 25 per cent a year. Rural markets account for around 30 per cent of revenues for Britannia and Parle, and over 50 per cent for regional brands. Bali thinks this is where the future lies: “Innovative packaging has made biscuits the most affordable and safest snacking option in rural India., she says.

Notwithstanding the fast-growing numbers, per capita biscuit consumption in India is only 2 kg a year, compared to 2.5 kg in the Philippines and Malaysia, and as much as 10 kg in the US and UK.

The competition will soon get fiercer. The Kraft-Britannia case is just the beginning, say industry observers. Britannia’s earlier spat with ex-partner Danone over the Tiger brand was just the trailer.

Biscuit manufacturers have other headaches too. “Rising raw material costs are impacting our business,”Bali grumbles. The compounded annual inflation for flour, sugar, dairy products and fats has risen to around 9 per cent from 3 to 3.5 per cent in 2005. Milk prices are up 25 per cent over the past year while sugar has almost doubled in two years. Parle, Britannia and ITC have experimented with price rises and weight reduction in the glucose segment.

Profitability for biscuit makers, then, is down but it is clear that when it comes to the world’s biggest market for biscuits, it will be a noholds barred battle for a share of the market — built biscuit by biscuit.