Britannia is unable to improve its profit despite a price increase — what’s next

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Britannia is unable to improve its profit despite a price increase — what’s next
Britannia

  • Britannia’s net profit plummeted nearly 23% on both quarterly and annual basis in July to September 2021
  • The company has been witnessing unprecedented inflation in market prices of palm oil, industrial fuel and packaging material.
  • Sunil D’Souza of Tata Consumer Products expects that the food inflation will worsen in the October-December quarter.
The higher input costs has been a major pain point for all fast moving consumer goods (FMCG) players — including Marico, Nestle, Hindustan Unilever, Britannia and Parle to name a few. The subsequent, rather constant, price increase across product lines has been the only saving grace for this segment to sustain their profits.

However, this too may not be working as effectively as the segment may have imagined. The simple reason behind it is the rising inflation.

The king of cookies, Britannia, has been increasing the prices of its products for several quarters, yet its profit has been declining. In the July to September 2021 quarter (Q2 of FY2022), the company’s net profit plummeted nearly 23% on both quarterly and yearly basis, despite increase in revenue and sales.
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Britannia is unable to improve its profit despite a price increase — what’s next
Bi India

A similar trend was witnessed in April to June quarter of 2021 as well.

Britannia, in its quarterly financial statement release on November 8, highlighted that it has been witnessing “unprecedented” inflation in market prices of palm oil at 54%, industrial fuel at 35% and packaging material at 30%. This is leading to an overall inflation in the July to September quarter to 14%.

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The company — which makes brands like Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold — initiated “necessary price increases” across its portfolio in order to mitigate the impact of the rising input cost, Britannia’s managing director Varun Berry said.

Berry, on a call with analysts on August 2, said, “It’s a very high inflation number that we are currently sitting on. A situation like this, just necessitates [price increase]. Cost efficiency can never take care of this kind of inflation. Two-three percent we can usually take care of, but this necessitates price increase and that’s why we move forward with that.”

Neha Khanna, director at investment banking and financial advisory firm Valpro, told Business Insider that apart from the rising input cost there are several other factors that could be leading to Britannia’s reducing profit. This includes stretched out working capital, marketing costs and more.

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Britannia’s shares fell 3% as of 12:25 p.m on November 9. This was majorly triggered by its financial performance in the last quarter.

From Nestle to Parle — FMCG under stress of increased input costs

Britannia is not the only company that has witnessed such a trend. Another FMCG brand Marico — which makes popular products Parachute oils, Set Wet, Livon and Saffola — noticed such a dip in its profit despite the overall increase in sales.

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CompaniesNet Profit (April-June 2021)Net Profit (July- September 2021)
Marico₹365 crore₹316 crore
Tata Consumer₹268.04 crore₹185 crore
Nestle₹617 crore₹538 crore
Hindustan Unilever₹2,100 crore ₹2,185 crore

The increasing input costs is an issue for all the players in the segment.

Companies like Nestle India, Colgate Palmolive, Emami, Tata Consumer Products, Wipro Consumer Care have taken up such pricing practices over the last one year to overcome the inflation troubles.

CompanyKey productsPrice rise in 2021
MaricoSaffola, Parachute, Set Wet, LivonSaffola price increased by 50%
Hindustan UnileverDove, Lux, Pears, Hamam, Lyril, Surf Excel, Wheel2.5% hike in price of Surf Excel, Rin, Lux, Wheel Detergent
Nestle IndiaNestle, KitKat, Munch, BarOne, Nescafe, Maggie1-3% hike in price categories

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Sunil D’Souza, chief executive officer (CEO) and managing director of Tata Consumer Products expects that the food inflation will worsen in the October-December quarter.

The CEO of Nestle India, Suresh Narayanan, in an interview with CNBC pointed out that nine out of the 13 key ingredients that it buys from the market have not been this expensive in nearly a decade.

Britannia is unable to improve its profit despite a price increase — what’s next
BI India

“... There has been an increase in input prices. That is leading to several price increases and what we really ensure is that their price increase does not go beyond 15% in a financial year,” Parle’s senior category head of marketing B Krishna Rao said, adding that 15% price rise is the point when customer’s demand for a specific product starts dipping.
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Valpro’s Khanna also noted that the companies could look at changing the pack sizes by selling less for the same price, however that always has the risk of hitting consumer sentiments in some ways. “That’s a classic FMCG tactic to ensure costs are saved,” she said.

The other way to increase profit is by cutting employee costs, administrative costs or maintenance costs, she added.

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