Britannia Industries Ltd is one of the biggest cookie manufacturers in India, and it plans to hike prices by as much as 7% this year. This inflationary pressure will hurt poorer consumers the most, as the war in Ukraine wreaks chaos on food supply chains.
Managing Director Varun Berry said that he had never seen two years as bad as this. The company’s first assumption was 3% inflation this year, which obviously went wrong by a very big margin because of the war—unfortunately, it’s turning out to be more like 8–9%.
Russia’s invasion of Ukraine has roiled consumer firms across the world, already competing with labour shortages and supply-chain constraints. The inflationary shock has upended the cost of basics, pricing many of the world’s most vulnerable people out.
In India, increasing prices risk denting demand in a country where private consumption accounts for some 60% of gross domestic product. According to Jefferies research, Britannia, which manufactures bread, cookies, cakes, and dairy products, is one of a handful of particularly vulnerable local firms.
Input price inflation could not have been worse, “Jefferies analysts,” including Mumbai-based Vivek Maheshwari, wrote in a report last week, adding that aggressive price hikes won’t be able to prevent declining margins for companies.
Britannia posted a 19% drop in quarterly net income through December, which was worse than average analyst estimates. Berry said every raw material used by the company is “looking inflationary” and it plans to “front-load” price increases this year.
“It’s a price shock for the consumer, while you dilute it to whatever extent by removing grams from the pack,” he said. But consumers are smart. They figure out that this packet is lighter than it used to be. So it will have some impact. We’re already seeing an impact with the price increases we got last year. “
Last week, Reserve Bank of India Governor Shaktikanta Das acknowledged the central bank would have to revisit its inflation forecast in its April meeting after consumer prices breached its 6% upper tolerance limit for two months in a row.
Despite those headwinds, Britannia is on the lookout for potential acquisitions as it diversifies its portfolio. In the next five to seven years, Berry wants cookies to account for about 60% of sales, down from the current 70%, as the company launches new product ranges from milkshakes to croissants and continues expansion across rural India.
Britannia is also slowly adding capacity across Africa, recently setting up contract packing facilities in Egypt and Uganda. The company has its sights on a similar venture in Kenya this year and may look to enter Nigeria, even though Africa’s most populous nation already boasts “a lot of strong players,” Berry said.
“Africa is becoming protectionist, so export business doesn’t work any longer,” Berry said, citing typical 30-40% import duties on the continent. Once we reach a certain threshold, we will consider putting our own money into those markets.