Britannia Industries Ltd., India’s biggest cookie manufacturer, plans to hike prices as much as 7% this year in another sign that inflationary pressures will hurt poorer consumers the most, as the war in Ukraine wreaks havoc on food supply chains.
“I’ve never seen two years which are as bad,” Managing Director Varun Berry said in an interview at the company’s headquarters in the southern city of Bengaluru. “Our first assumption was a 3% inflation this year, which obviously went wrong by a very big margin because of Mr. Putin — unfortunately it’s turning out to be more like 8-9%.”
Russia’s invasion of Ukraine has roiled consumer firms across the world already contending with labor shortages and supply-chain constraints. The inflationary shock has upended the cost of basics, pricing out many of the world’s most vulnerable people. In India, increasing prices risks denting demand in a country where private consumption accounts for some 60% of gross domestic product. Britannia, which makes a range of bread, cookie, cake and dairy products, is among a handful of particularly exposed local firms, according to Jefferies research.
“The timing of 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, a 130-year-old company which makes brands like Good Day and Marie Gold cookies in India, 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 grammages from the pack,” he said. “But consumers are smart, they figure out that this packet is lighter than 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 will 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 look out 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 of “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. “We’re not putting up our own money into those markets yet, we’re looking at contract packing and then distribution — once we get to a certain threshold, then we’ll start to look at putting up our own investment.”