Why have a good day when you can have a great day!” The line evokes a mild chuckle from Nikhil Sen, managing director of the Bengaluru-based Unibic India. It was, after all, aimed at his former employer, Britannia, where he served for over two decades before resigning as its chief operating officer in January 2005. This headline of Unibic’s tongue-in-cheek print campaign in 2007 that clearly took potshots at Britannia’s leading brand Good Day, raised the ire of its promoter Nusli Wadia, who eventually secured a legal injunction and restraining order against the Unibic campaign.
Since then, Sen has known better than to take his entrenched and deep-pocketed competitors head-on. Instead, he has focused on growing the virtually unknown Australian cookie brand’s presence in India, one crunchy nibble at a time. The result — a small but significant bite from the premium end (10%) of the ₹16,500 crore biscuits business. In FY13, Unibic clocked close to ₹100 crore in revenues, according to Sen, and is well on its way to turn profitable this year.
Cookies are a more recent phenomenon in the traditional Indian biscuits market, dominated by the hard glucose variety. Till about seven-eight years ago, the Indian consumer could only choose between biscuits priced under ₹10 and imported brands priced upwards of ₹100 a pack. Unibic went for the mid to premium end of the biscuits market, where cookies and value-added biscuit variants fit in.“We are placed somewhere between Britannia’s Good Day and expensive imported cookies,” says Sen.
The pricing of Unibic’s products reflects this approach. For instance, a 150-gm pack of Unibic’s cashew butter cookies is priced at ₹34, a premium of 36% over Britannia’s Good Day cashew cookies at ₹25. Similarly, while ITC Foods’ Sunfeast Dark Fantasy is priced at ₹25 for 100 gm, a 90-gm pack of Unibic’s Choco Kiss sells for ₹30 — a 20% premium. It’s a fairly narrow price band that Unibic straddles now but also one that’s growing faster than other biscuit segments.
It is Britannia, though, that’s credited with creating the cookies category in India with the launch of Good Day in 1986. It still rules the cookie market along with Parle’s Hide & Seek that came in 1998. The premium end saw renewed action from mid 2005, when ITC Foods launched Sunfeast Dark Fantasy, a premium cream biscuit. Later, Oreo from Cadbury India and McVities from United Biscuits joined the cookie bandwagon. So, what’s Unibic doing to protect its niche and taste sweet success?
A slow bake
Unibic was incorporated in India in August 2004 as a joint venture between premium cookies maker Unibic Australia and Dhruv Deepak Saxena, a Melbourne-based serial entrepreneur, who has since exited the business. The company started operations in March 2005 importing two cookie brands, Anzac (oatmeal) and Bradman (chocolate chip), from Unibic Australia. By late 2005, its manufacturing unit in India was up and running, producing cookies at costs that were as much as 40% lower than procuring them from Australia. A five-year deal with Amalgamated Bean Coffee Trading Co for supplies to its Café Coffee Day outlets came as a shot in the arm for Unibic India. It went on a marketing overdrive, spending ₹7.5 crore on advertising and promotions in 2006. Around 60% of this was for television commercials aired on southern regional and national channels. The rest was on association with sports events and cricket, where it brought the Unibic Bradman 20/20 tournament to India.
How the cookie crumbles
The composition of the ₹16,500-crore biscuits market
has changed significantly, with the share of glucose
biscuits coming down from 26.5% to 19%
By early 2007, Sen was on board with sweat equity, as COO. Soon after, it established a retail and distribution presence in a few southern states, and bagged an export deal from Australian supermarket Coles. This was also the time that US-based private equity firm Lighthouse Capital picked up a reported 20% stake in the company. The next few years saw the company further consolidate its presence in South India, sign on Australian supermarket chain Woolsworth as a customer, and receive an eligibility certificate by the British Retail Consortium for exporting cookies to the UK market. Its private label business had begun to grow by now, as well. By 2010, its revenues had reportedly touched ₹60 crore.
Unibic’s fresh-off-the-oven success caught the fancy of FMCG major Marico, which evinced interest for a 51% stake in the company in late 2010. The protracted talks eventually fell through, and in 2011, Lazard India Private Equity picked up Unibic Australia’s majority share in the Indian holdings. Yet again, in late 2012, private equity firm Peepul Capital bought out Lazard private equity’s majority stake in Unibic India for a reported ₹100 crore. Its current owners now include Peepul Capital and Lighthouse Capital, with Sen’s holdings said to be in the 10-15% range. The Indian business continues to pay a nominal royalty to Unibic Australia for use of the brand.
Armed with sufficient funds, this time around Unibic is betting on a favourable environment to grow faster than it has so far. Its timing could be just right. The composition of India’s biscuits market has changed significantly over the past couple of years with the share of glucose biscuits, traditionally the largest selling category, coming down. In fact, the cookie market in India became larger at 26.2% with glucose at 19.3%, as per Nielsen data for the July-September quarter of 2012. Cream biscuits, the other major category is the second largest, accounting for 22.2% share. It’s a significant development for cookie brands since, in 2010, glucose biscuits were leading the market with a 26.5% share, while cookies and cream biscuits trailed behind at 23.8% and 16.6%, respectively.
This happened because biscuits makers such as Parle, Britannia, Surya Foods & Agro and ITC Foods introduced a slew of non-glucose products, in pursuit of higher margins. According to research and investment advisory firm Espirito Santo, non-glucose products bring in at least 10% higher margins for biscuit makers. And, being an under-tapped market, growth in the premium segment — cookies and cream biscuits — far outstrips the mass glucose segment. “The category is evolving. Cookies were considered a special occasion treat earlier but now biscuits makers have flooded the market with new offerings and customers are willing to spend a little more if they find the proposition to be value-for-money,” says Harminder Sahni, founder of Wazir Consulting, a Gurgaon-based retail advisory firm.
Already, Unibic cookies are being retailed through more than 100,000 outlets, says Sen. That’s still limited, compared with the distribution reach of heavyweights like Parle (3.3 million outlets), Britannia (3.5 million outlets) and ITC (2 million outlets), although strictly speaking, there’s no comparison since the biggies operate across the spectrum of the biscuits market, while Unibic is limited to a much narrower belt. Moreover, 60% of sales continue to come from south India, and the rest from metros such as Delhi and Mumbai. While Unibic’s retail brands bring in 70% of revenues, its contract manufacturing and private label business contributes another 20-25%. It makes cookies for Café Coffee Day and Indigo for its onboard service, and for the private labels of Future Group for its Tasty Treat store brand and Aditya Birla Retail’s More chain, which sells its own food products under the Feasters label. The rest comes from exports to the US, UK, New Zealand and countries in West and South East Asia.
The company is yet to make profits but Sen says that will happen in FY14 when revenues are expected to touch ₹150 crore. To achieve those numbers, though, Unibic will need to draw upon more than its Australian lineage, or even its early success recipes. Much will hinge on its ability to innovate and deliver new variants regularly. Apart from its current portfolio that includes Bradman chocolate chip cookies, Anzac oatmeal cookies, and butter, butter-cashew, choconut and Jamz cookies, Unibic India is now getting into healthy products like sugar-free and digestive oatmeal cookies as well.
Its factory at Huskur Road in Bengaluru has state-of-the-art machines imported from Italy with two oven lines working at 75% capacity. Sen says the processes employed to make its cookies lend an authentic texture. Claiming to be the first biscuit maker in India to use wire cut technology in baking cookies, he adds that it’s the only method available to make cookies softer and chewy, unlike biscuits. Biscuits are typically made through sheeting and cutting or rotary moulding. In sheeting and cutting, the dough is passed through rollers to get the desired thickness and then cut using plastic or metal dies. The dough has to be kept hard so that it retains its shape when the extra scrap is being removed after. In rotary moulds, the dough needs to be compressed into dies or slots mounted on a roller with extra dough being scraped off. The dough needs to be stiff here as well for the biscuits to retain their shape. In wire cut technology, the short dough or much softer dough is extruded through a die and cut by wires at regular intervals without being pressed by rollers.
Cookies are amongst the biggest categories for private labels and make for upwards of 20% of modern retailers’ overall sales, informs Sen who is banking on the private labels business to fuel the next round of growth for Unibic. But that’s some time away, as modern retailers get their act together, and the effects of FDI in multibrand retail kick in. “Not many big retailers are profitable. They have massive stores in high rental locations. They need to figure out how to make profits first. Expansion will come after that,” says Sen.
He still sees merit in selling to such retailers, though, as the learnings from such relationships will help improve Unibic’s processes. “The more these international players come in, more people like us will benefit. Abroad, you deliver your goods to stores with appointment. This means that if your delivery truck misses its appointment it has to wait a while to deliver goods. This, in turn, means that truck guys will start arriving at our factories on time, we will ensure loading on time and so on. The entire system becomes more efficient,” he says.
With growth in the cookie market estimated at 20-25%, Sen expects Unibic’s business to grow faster at 35% in the near future. It is lining up new products such as chyavanprash based and a sugar-free cookies, even as it works on growing reach among the top 20% population towns. “Expanding distribution is key for us and we are working on it diligently,” he says. The target is to eventually have a pan-India presence, especially by increasing retail reach in north Indian cities such as Jaipur and Chandigarh, and in cities such as Pune and Nasik in the West, by the end of the current financial year.
This also means that advertising will be limited to print and event sponsorships, for now. Sen says the focus is strictly on below-the-line (BTL) activities such as in-store promotions and on social media outreach. Research and stock broking firm Edelweiss Capital expects the company to do well despite stiff competition in the category. “On account of consistent and superior quality of products, we believe Unibic can capture a niche space for itself,” say Abneesh Roy and Harsh Mehta in an earlier report.
Capacity expansion isn’t an issue for now, and Sen says the Bengaluru factory can handle much more volumes without having to go in for significant capacity addition. In any case, a third oven line is being considered at the current factory premises during this fiscal year. If there is a sense of urgency to grow, Sen isn’t showing it. Having played by the classic marketing rulebook so far, it’s evident that the sharp focus and measured pace are here to stay. And so is the value proposition. “We will never be a mass-market brand,” he says.