Ladies and gentlemen, good day and welcome to the Britannia Industries Limited Q2 FY24 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Mundra. Thank you, and over to you, sir.
Thanks, Rayo. Hello everyone, this is Mayank from the investor relations team. I welcome you all to the Britannia earnings call to discuss the financial results of Q2 2023-2024. Joining us today on this earnings call is our Vice Chairman and Managing Director, Mr. Varun Berry; Executive Director and CEO, Mr. Rajneet Singh Kohli; Executive Director and CFO, Mr. N. Venkataraman; Chief Commercial Officer, Sales and Replenishment, Mr. Vipin Kataria; Chief Marketing Officer, Mr. Amit Doshi; and Chief Procurement Officer, Mr. Manoj Balgi. The analyst deck is uploaded on our website. Before I pass it on to Mr. Varun Berry, I would like to draw your attention to the Safe Harbor statement in the presentation. Over to Mr. Varun Berry with remarks on the performance.
Good morning everybody. Welcome to the Britannia analyst call. Let me just jump into the presentation. If you get to page three, that gives a quick overview on what the GDP growths have been. If you look at it, the green bar signals the real growth, and the red one shows the inflation. You will notice that inflation is down, and in this quarter it's at 7.8%, out of which the inflation number is only at 0.2%. Things are coming back to normal. As you'll notice, that full year 2021, 2022, and 2022-2023 were at a very high number as far as inflation was concerned. Moving on to the next slide, this gives an idea of where we play in and what is the total market that we are playing in.
So if you look at the categories that Britannia plays in, it's about INR 1,000,000 crores, and the five-year CAGR for this category has been 11%. If you look at the total branded F&B category, that is at INR 9,000,000 crores with a five-year CAGR of 12%. The total F&B is at INR 40,000,000 crores, which has got a five-year CAGR of 11%. And then if you look at the GDP, which is at INR 235 trillion, now it's difficult to calculate lakhs and crores, but which has got a five-year CAGR of 9%. So the numbers are looking pretty good. If you look at the right-hand side, you will see that if you look at the average F&B consumption occasions per day, that have gone up. If you look at the 2010 number, it was at 3.9, and that has gone up to 5.1 in 2023.
The biscuit consumption occasions during the year, they used to be at 303 in 2018, and those have gone up to 370 in 2023. Overall, looking good. If you look at the next slide, which is a very interesting slide, basically what's happening is that we are getting to a situation of nuclear families. Size of the family is reducing. The number of women who are participating in the workforce is going up, and as a result of that, there is a need for packaged food and convenience, and that's why the growths that we are seeing as far as branded F&B is concerned. Obviously, this is coupled with the fact that the per capita income is also growing pretty well in the country.
Moving on to the next slide, this gives a breakdown between the urban and rural, and you will notice that there is more urbanization happening. Urban as a percentage or as a contribution to the overall economy has been growing. It's gone up, let's say, if you were to take in the last two or three years, it's gone up pretty substantially. So that's good for us because we have predominantly been a stronger urban company. However, for us, the growths in the last, let's say, 10 years have been much faster in rural because we've been gaining more distribution and making our presence felt in more villages and smaller towns. So if you look at the bars on the right, our market share currently is also more urban-centric. Our market share is heavier in urban. It's 1.3 times what it is in rural, in urban.
And similarly, our numeric distribution is also 1.2 times what it is in rural. So for us, the slowdown in rural is something that we can counter with our distribution growths, which will continue. And the urban growth is obviously helping us because that's our area of strength. There are more details on this, but I will leave that for you to read through. Moving on to the next slide, this gives the growth potential for categories other than biscuits. So if you look at biscuits, we have a penetration in households of about 94%. So biscuits, bread, and rusk has pretty high penetration, ranging from 82%-94%. So there, it's going to be a consumption-led growth that we are looking at. And the reason for the same is that, one, as far as biscuits is concerned, our per capita consumption in India is only about two kilos.
And if you were to factor in the number of consumption occasions, which has gone up from 303 to 370 per annum, the number of biscuits that are consumed is just about one biscuit per occasion, and that can definitely go up. So it's going to be a consumption-led growth here. And if you were to look at it by categories, while there are categories like glucose, Marie, and some of our cookies, which have got reasonably high penetration between 40%-60%, there are lots of categories where the penetration where we have less than 20% penetration in households. So there is a big opportunity for us to grow penetration in those categories and drive consumption thereby of biscuits. There are other categories like cake, dairy, drinks, wafers, cheese, croissant, where you'll notice that the penetration into households is very, very low.
We will be looking at a penetration-led growth. Croissant is an absolutely fledgling category where we have to drive penetration into households. That's how we look at the potential for the future. The next slide is just about we are in a good position with a good portfolio to leverage all of these opportunities and to continue to enhance our capabilities as we move forward. Now, just a quick capsule on what's happened in the last 10 years. If you look at the last 10 years, our distribution has gone up four times. This is on page nine, by the way. Our direct reach has gone up four times. Our rural distributors are up seven times from what they used to be in 2013. We have four brands in the INR 1,000 crore-plus category, and these four brands contribute INR 9,700 crore to our total turnover.
Innovation has contributed 10% of our revenues. Categories and geographies that we've entered into, we've gone into four new categories and four new geographies outside of India. We've had two very solid partnerships, joint ventures that we've gotten into. One was for croissants, which was with Chipita, and second was just this year with Bel for cheese. So pretty good progress there. Next slide, if you look at our own manufacturing, we are now at about 65% owned manufacturing. We have set up 11 new plants in the last 10 years, and we have a mega food park in Ranjangaon where our total investment is going to be INR 1,500 crores+ with very handsome incentives from the Maharashtra government. Cost efficiencies have been a very strong pillar for our profit growth.
We've had more than INR 2,000 crore of cost reduction during this period, and that continues to be a pillar for us even in the future. Digital, we've spoken about it in the past. We've gotten into SAP S/4HANA, which is giving us great dividends. We are rapidly evolving as a digital marketing company. We are leveraging digital to flourish in e-commerce as well. We are leveraging all of the digitization that we've done internally to make sure that we have all the data for us to take very intelligent decisions, and we have a transformation across functions to drive efficiencies with this information. On the sustainability front, we are among the top 30 India's most sustainable companies. We've had 100% plastic neutrality, and we are now doing quite well even on the international circuit as far as the Dow Jones Sustainability Index is concerned.
From a people standpoint, we've been rated as top 15 best employers four years in a row. We've been awarded Best Organization for Women in 2023. Our gender diversity in our factories has gone up from 28%-45%, and we have very agile and resilient teams to navigate through the turbulence that we've seen from an inflation front and from a global scenario, right? So moving on to the next slide, this is what we achieved last year. That was our turnover, a CAGR of 10%. Our operating margins are pretty healthy at 16.3%, which have even gone up further this quarter, and our CAGR on profitability stands at 25%. Our long-term value creation has been pretty good with a CAGR of 32%. Next slide, this is just something that we feel that it's very basic, but I think it can give us very good dividends.
We've worked on fill rates. We were at a reasonable rate on fill rates on modern trade and e-commerce, but we've moved up pretty rapidly. We've gained almost from 75%- 90% as far as fill rates is concerned, and this will hold us in very good stead as we move forward. We are relooking at our route to market now with a portfolio which is very solid. We are looking at how do we make sure that we leverage our portfolio even better. Coupled with data analytics and artificial intelligence, we are looking at making sure that we become cutting-edge as far as this is concerned. Now, moving on to the performance update for the quarter, page 14, our revenues have been flattish. If you look at a 12-month growth number, we've grown only 1%, but our 24-month growth is at 23%.
Operating profits have grown on a 12-month growth rate at 21%, very healthy 58% on a 24-month growth path. Our shares, we had sort of got stagnated a bit for the last quarter, but we have seen a very good exit rate because we've made some corrections which were required from a pricing standpoint to stay competitive in the market, and that's looking good as well. Now, getting back to our strategic pillars which we've spoken about every quarter: distribution, marketing, innovation, adjacent categories, cost efficiencies, and sustainability. I will cover each one of these in a slide. As far as distribution is concerned, our direct distribution has gone up. In March 2019, we were at 2.1 million or INR 21 lakh outlets covered directly. This has gone up to 2.73 million in September of 2023.
Our total distribution has gone up from INR 54 lakhs to INR 66 lakhs, but as you'll notice, a bulk of this growth has come from direct distribution, and indirect has stayed at about the same number. Our focused state growths have been continuously pretty good. These are the last four-year numbers. You will notice that these have slowed down this year, but that is a result of the whole rural scenario becoming a little slower than what it used to be. However, these growth rates are still healthy, and we are hopeful that as we move through to the next quarter and onwards, these will come back to double-digit growths as well. Moving to the next slide, we've stepped up our investments as far as brands is concerned. These are all the brands that we've really supported: Good Day, 50/50, Milk Bikkies, NutriChoice, Jim Jam. Jim Jam is doing extremely well.
We've also launched Jim Jam Pops, which is adding on to the Jim Jam franchise, and Bourbon, which has been renovated and is doing extremely well in the marketplace. Similarly, on the adjacent categories, there's been quite a bit of activity on cake, rusk, as well as on cheese. We've also done some consumer promotions to make sure that we remain competitive and continue to gain share, which we've done continuously for the last 10 years. Innovation, I spoke about Jim Jam Pops, which is doing extremely well, a very exciting product and very well appreciated by consumers. 50/50 Golmaal, which is again a very intriguing and interesting product, doing extremely well. We've also launched makhana in three flavors. We've launched the portions, which is the triangular portions, under The Laughing Cow brand name, and cheese sachets, which are INR 10 sachets.
All of these innovations are running towards an annualized number of about INR 200 crore. Moving on to the next slide, adjacencies have been on strong footing. Surely, there is more work to be done there. There is competition coming in in all of these categories, which is good in a way because when you have more than one player, it always creates more demand. So on cake, we've had some very interesting innovations. Rusk, we've not done as well on the top line, but I think we've rationalized. We've got our recipes up there now. Bread continues its profitable growth trajectory. Cheese has been a double-digit growth contributed by base and all the differentiated formats. Our cheese plant is commercialized for making cheddar cheese. Processed cheese will start by the end of this year, this financial year.
We've already started to supply our whey powder in addition to the SMP and SCM, which is being consumed by our biscuit business. Middle East and Africa is growing double digits with improved margins. Egypt continues to perform well. We've set up an operation in Kenya, which is having its teething troubles, but things are looking like we have a good future there as well. Nepal is a spectacular growth story and continues to be on a good trajectory both from a bottom line as well as a top line standpoint. Our cost efficiency programs, we've spoken about these. These are the structured programs that we drive. It's about making sure that we have truck utilization, which is at the highest level, distance travel to be reduced, market damages to be reduced, renewable energy, fuel consumption, and the line throughput and efficiencies.
These cost efficiency programs have gone from 1x to 7x in 2023/2024. The next slide is about our factories. In this quarter, we've commercialized Bihar. This is our second factory in Bihar, and we have three product lines in the first phase. We've also recently added UP, which was commercialized in the previous quarter, and Tamil Nadu, which are operating at desired efficiencies. And we are looking at adding some more lines to our Ranjangaon factory, which is really our flagship factory, which is delivering 15% of our total capacity requirement. The next slide is on ESG. As you're aware, we have four strategic pillars as far as ESG is concerned, and these are growth, governance, resource, and people.
Under these four pillars, we have eight levers, which are basically around social responsibility, global total foods company, our responsibility towards the country and the people, packaging, supply chain, food waste, resource efficiency, and people. Under this, we have 26 programs which we continue to drive very meticulously. The numbers that you see on this chart give you some of the achievements that we've had under these 26 programs that we run. I will not dwell on this chart. It's there for you to go through it and read it. All I can say is we've made great progress on the ESG front as well. The next slide is about the Britannia Nutrition Foundation and what it does.
Just to remind you, Britannia Nutrition Foundation operates in eight states with 450 villages, which are covered, 500+ schools, 650+ anganwadis, and there are approximately 220,000 beneficiaries out of this program. In this quarter, we've launched My Plate, My Nutrition Initiative, which is along with the government initiative of the Poshan Maah, as it's called, which is Nutrition Month. We've had concept champions who are propagating this. These are executed through change agents around the community that we work in, and these are augmented by creating 20,000+ nutrition gardens in all of these states and the Anganwadis and the villages that we operate in. This has been a pretty exciting program that our people have been running. Now, getting to costs, if you look at commodity, flour, which is a pretty large component of what we use, there's been inflation as far as flour is concerned.
Palm oil has been deflationary, and that is giving us some benefits. Sugar has been flattish, slightly inflationary, while packaging is positive. However, if you were to look at the worst scenario, I think it's important that we watch out for commodities as we go forward because things could escalate, and hence, we are being very, very vigilant on making sure that we keep these costs under control. Moving on to the next slide. So what are we going to do, and what are the key strategies for us as we go forward? We will continue to invest behind brands and innovation. Cost efficiencies will continue to be a very important pillar for us. We will make sure that we take measured pricing corrections wherever necessary if the commodity situation remains positive.
As I said, we are closely monitoring the stock price situation of commodities with the strife that we are seeing in the Middle East and Russia, and we will remain vigilant as far as this is concerned. Getting to the financial results, our top line growths, as I said, healthy for 24 months, low for a 12-month growth number, which is 1%, sequentially up from where we were in Q1. So we've achieved INR 4,370 crores in this quarter as our revenue. Next slide, profit. This is looking pretty healthy. Our operating profit has grown by 21% to INR 801 crores, which is 18.3%. And if you look at it on a 24-month growth basis, it's at 58%. Next slide, which gives our 12-month as well as 24-month growths.
Net sales, as I've already spoken about, operating profit already spoken about, PBT and PAT at 21% and 19%, and on a 24-month growth at 53%. If you look at our ratios, they're looking pretty positive. So it's, I would say, good results. I would still make sure that I focus and the team focuses on getting our top line to grow much faster. I'm confident as we go through the balance of the quarters this year, and therefore, we will see growths coming back. So that's all I have for you. Let's open this for questions, please.
Thank you very much. We will now begin with the question-and-answer session. Anyone who wishes to ask questions may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Also, in order that the management is able to address questions from all participants in the conference, we request participants to please limit your questions to two per participant. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from the Nuvama Institutional Equities. Please go ahead.
Yeah. Thanks and congrats on good margins, and thanks for the detailed presentation. My first question is on the innovation in terms of the Makhana Better Snacks. My question here is, under Better Snacks, will we see a much bigger plethora of products in the medium-long term? Second, Makhana is a very commoditized, so how are the margins here? Why do this? And third is, will this have a very wide distribution, or this is more of bigger outlets and more of the top 20 cities kind of a market?
Yeah. So Better Snack Company is basically a brand that we will try to leverage for products which are healthier snacking products. So definitely, this is going to be a platform for us for the future. Makhana is, I wouldn't say it's commoditized, Abneesh. I think it's a very small category, and we are not looking at distributing it widely. This is going to be a modern trade, e-commerce launch only. And till now, we've seen reasonably good results on that. Does that answer your question?
Yeah, it does. So thanks for that. And slight related question, in terms of the salty snacks, which you have been trying given your very strong experience in the previous company, you have also tried that under Britannia past few years. So will that work in a way with the Better Snacks? And any update if you can share on salty snacks, how is the scale-up?
Abneesh, that's a very tough category, and we want to make sure that we get all the data required before we do a wider launch. So even at this point in time, it's in test market. And as we have gone through the months, we've realized that there are so many things to learn from these test markets, and every month, there are new things coming up. So only if we feel absolutely comfortable with our marketing mix and we feel that we have a strong right to succeed will we go ahead with a national launch.
Thank you. The next question is from Avi Mehta from Macquarie. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, I just have two questions. One, I wanted to understand your comment on market share gains a little better and whether you believe this suggests that the price-based competition is largely behind us. Would you see it this way, or I would love to hear your comments on that one, sir. Thank you.
So the trend, if you were to study trends in most categories, most FMCG categories, what happens is that in inflationary times, there are these smaller players who just go out of business, right, because they can not get there with the cost structures that they have. And their cost structures are mainly around giving much higher margins, giving bigger discounts. So with all that put together, it becomes very difficult for them to make ends meet. But once the commodity prices start to come down, and I've heard this commentary from a lot of FMCG companies this quarter. But once the commodity prices start to drop, they again start to give big discounts and big margins, and they start to come back to play in the market. And that's what's happened with most FMCG categories this quarter. So you've got to be vigilant. You can charge a premium.
Obviously, you've got strong brands. So you can charge a premium to all of these players, but the premium has to be within a band. If it goes beyond that band, then they start to hurt you in pockets. So that's what you've got to be careful about, and that's what we've done. As market leaders, it's always the onus on us to take the prices up because no one will take the price up if they don't see the market leader move up. And so that is a disadvantage for the market leader because we move up first, and then people start to take prices up. And then when the commodity prices soften, then people start to cut prices again. So that's what's happened, and we've taken the right action. It's not that we are not at a premium to these players.
We are still at a premium to these players, but the band has to be defined.
So maybe I'm not very clear yet. So maybe I can rephrase the question. Is the premium now at the mid-end of that band that you see at the lower end or at the top end? How do you see that?
It's still at the top end. It's still at the top end of the band. It's not so let's say we define the band to be 20%. If the premium goes to 30%, then you start to get hurt. So we've got to make sure that we keep that within that band of 20%.
So sorry, sir. You think there is still room wherein this could be a cause of, and we have to be vigilant. That's how I should read it? It's not yet behind us?
No. I don't know what you're saying. I don't understand.
Yeah. So maybe I mean, what I meant is this competition is just price-based. Would you say that the worst of it is over or not? That's what was my question because we are now seeing last quarter, the trajectory on market shares, and that has reversed. So that is where I was coming from.
Yeah. No. That's why you're seeing the results.
Okay.
Yeah. But we have to be vigilant as we go forward as well. Yeah.
Okay, sir. Okay.
Okay.
Okay. Sorry, sir. So the second bit I just wanted to understand was on the margin side. Now, the first-half margin performance, given this first-half margin performance, do you see a need to revisit your flattish EBITDA margin guidance for FY 2024?
We don't give any guidance. Which guidance did we give? Did we give any guidance on EBITDA margin?
Okay. Okay, then. Okay, sir. Maybe then I misunderstood the earlier comment, which was given last quarter. But would you say that this is the level that one can kind of continue? What could be the risks for this EBITDA margin trajectory in first half to come off, especially because the employee cost reduction has been two-star? So I wasn't sure if this quarter was a one-off performance or how should I look at that. That is what was the basis.
We don't give a guidance, frankly. I don't know how to answer your question. Yeah? I think we should move on because.
No problem.
Yeah.
Thanks.
Thank you. The next question is from Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, Varun. Good morning. Thanks for the opportunity. Just two questions. In the beginning, you mentioned that focus state growth has come down. So would you be able to give some more qualitative comments on what's happening in UP, Bihar? Because my understanding is a strong glucose market. So maybe qualitatively, you can add. And maybe what is the contribution of these four focus states to our revenues?
So okay. So let me answer your first question first. See, what's happened is, as I was saying in the beginning as well, these markets are predominantly rural, right? And the rural growths, which were at about two times urban growth till last year, are now lower than urban growth this year, right? So rural growths have come down overall, right? And that's the reason why these growths have come down. Having said that, I don't think there's any fundamental issue. I think it's about the overall growth in the market. And we are still, I would say, growing faster than what the overall market is growing at in all of these states. And I personally think that the hard work that we've done in the last 10 years of building a very strong rural distribution is going to keep us in good stead.
As the markets start to come back, as the rural economies start to come back a bit, things are going to be much better as we go forward. If you're asking me, have we lost share in these markets? No, we haven't.
Yeah. Because normally, you used to give the market share numbers. So that's why I was a bit worried.
No, no, no, no, no. You don't have to be worried. You don't have to be worried. So we've just changed the format. We've actually gained share in all of these states.
So the reason why I'm saying because normally, you used to give in the beginning, "What is the packet growth?" And this number, you have not given this time. So I was wondering whether the volume loss is primarily because of this. So maybe if you can share, what is the packet growth you have seen in the quarter?
The packet growth this quarter has been flattish, Shirish. So yeah. It's been flattish.
My second and last question on the ad spend. Most of the FMCG companies have upped the ad spend in the recent quarter. So would you quantify what is the ad spend number which has happened and where it will settle in the next two quarters?
So we have also, between the consumer promotions that we are running and all of the advertising that we are doing behind our brands, we have raised the ad spends, well, not ad but total advertising and promotion spends by about 1.5%. But it might not show in the P&L because some of the promotions, which are grammage-based, will not show in the numbers. But the total spend on advertising and promotions has gone up by about 1.5%.
Okay. Thank you and all the best.
Yeah.
Thank you. The next question is from Aditya Soman from CLSA. Please go ahead.
Hi. Good morning. So firstly, you highlighted this whole branded F&B category being INR 9 trillion. Would you, I mean, how much of a play can Britannia make in that category? And any specific categories or subcategories within that that you want to highlight where you feel that Britannia potentially has a right to win?
So that's a great question. Now, we are, I would say, probably the most focused company in terms of what we do. If you were to look at other FMCGs in India, their diversification sometimes is pretty varied, and they get into a variety of categories. What we've stayed true to is to make sure that we move in concentric circles. So we've tried to cover the bakery first and obviously dairy, which is a play for us. So we are basically in the bakery space and dairy. We are doing some experiments with salty. We are looking at some of the other categories as well. But we are staying close to the knitting so that we don't go too far from where our strength lies. Now, dairy is also becoming a big play for us, and we will make sure that we play much harder there.
Having said that, there are lots of other categories which are interesting. So the large categories that we don't play in, which are in the branded F&B space, are salty snacks, are chocolates, all of these categories. And we know that at this point in time, we don't have a right to succeed. Even companies which have gotten into this have struggled. Even companies with very deep pockets have struggled. So we just want to make sure that we first make absolutely sure within the team that we have a right to succeed, and then we move forward. As I've said in the past, we would want to stay in the snacking space, predominantly in the baked snacking space for the time being, then move to other snacking areas, which is basically not in the middle of the plate.
At some stage, we are doing a lot of other R&D is working very hard on other categories as well. But we will move into those only when we are absolutely clear that we have a right to succeed.
No. I understand. Very clear. And just to follow up on this, I mean, you mentioned that maybe in some of these categories, at this point, you don't see sort of any natural right to succeed. But how do you get to that point where you're confident that, "Look, we are likely to succeed"? Let's say chocolates, right? I mean, hypothetically, would that be test marketing and then taking that up a notch? Or at what point would you just dismiss that category?
So there could be various ways of doing it. So one is if you look at what we are doing in salty, we've been in test market for the last three years, and we continue to do it so that we can fine-tune our product before we are clear about where we are going. Similarly, chocolates, obviously, we could look at getting into this and test marketing it. We could even look at alliances, joint ventures. So there are various ways of doing it. I'm just talking from the top of my head right now. So there could be various ways of doing it, and we have been in the process of evaluating all this. And I think we are not clear whether these are the right categories for us at this point in time.
Thank you. Before we take the next question, a reminder to participants that you may please limit your questions to two per participant. For follow-up questions, you may rejoin the queue. We take the next question from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, Varun. Firstly, just a couple of hygiene questions. Firstly, if you could give the volume growth or decline for this quarter? And secondly, if you could explain the big QoQ drop in the employee cost, that would be very helpful. And my main question is on the growth. So the poor growth that we have seen this quarter, could you break the reasons up into two or three parts? So one is that there is a high base. Second is there is a general FMCG demand weakness. Third is that there is this local and regional competition, which is getting active. So if these three reasons put together were, let's say, 100, what part of that 100 would you allocate to each of them?
That's a very complicated question, Percy. I don't okay. Let me answer your first question. Your first question was volume growth. It's flat. It's just about 20 basis points, right? So volume has been flat. The second question was on employee costs. There are some base issues. Otherwise, there's no real change in employee cost. There were some options, etc., which were in the last year. So there's no change. Employee costs have been reasonably stable. What was your third question? You'll have to rephrase it. 100 and all of that, I didn't understand.
Okay. Fine. What I wanted to understand is that there are, as I can see, three reasons why the growth is weak. One is that there is a high base effect. Second is that there is a general FMCG weakness. And the third is that there is an increased local or regional competition. So which of these three reasons is relatively the larger contributor? Which of these is relatively a small part of the answer? That's what I'm looking at.
Okay. I got it. So now, obviously, there is a slowdown as far as FMCG is concerned. What we are seeing is a clear slowdown in rural. And despite our continuing to get deeper into rural areas, getting into more villages, etc., we've started to see the rural economy splutter a bit. However, these are macro issues which companies like us cannot sort out. We continue to go on our agenda of building distribution because we know that while we've had a weak monsoon and the agriculture economy has not been the greatest this year, we know that this will come back. And when it comes back, we will benefit from that. Second, we have had a very high base. So last year, our growth was 22% in this quarter. So that also is contributing to it.
Third, on the regional players, I think we wouldn't say that for the full quarter, this has been a big issue. But yes, for the first, let's say, month, month and a half, this was something that was an issue. So we did take some pricing actions. And we will continue to be vigilant on that. I think that's something that we can manage. I think it's the slowdown in the demand, which is something that we have to look out for and hope that that corrects as we go forward.
So in this context, when the volume is weak, demand is weak, what is the reason to sit at such a high margin? Shouldn't we sort of pass on more to the consumer, maybe operate at a 17%-18% margin rather than 19%-20% margin, and bring the volume growth up?
No, you're right. I think the agenda for us is to make sure that we grow our volumes much faster. But in times like this, Percy, even throwing money is throwing money at the wall. So we've got to make sure that the demand corrects before we start to do that. My sales head and my marketing head are delighted to hear your comments. But yeah, the target for us will be to make sure that we grow our top line much faster than what we've done this quarter.
Thank you. The next question is from the line of Jay Doshi from Kotak. Please go ahead.
Yeah. Hi. Thanks. A couple of bookkeeping questions. What's the cumulative price cut that you've taken at a portfolio level from the peak pricing that you may have seen six, nine months back?
Venkat, would you have some number for that? 2.5%? 1.5. So about 1.5%, I would say.
If I understand correctly, your cumulative price increase in the inflationary environment was about 20%-23%. And from there, you've reduced by 1.5%-2%. So it's still 20% above?
Yes.
Right. Now, see, in most FMCG categories, what we've seen is companies cut prices proactively even before there is full recovering gross margin. At least, that's what we've seen in this cycle. You've managed to maintain your market share quite well and also gain 250 basis point gross margin expansion over pre-pandemic levels. So do you expect that for the category and for Britannia, gross margins of 42.5%-43% is a new normal gross margin? Or you have intention of sort of taking it down to somewhere midway between 40% where it was pre-pandemic and 42.5%, 43% where it is right now?
No, that's a very tough question. In the current environment with the Middle East in flames and Russia, Ukraine going at each other, we don't know where this situation is leading up to. So we've got to be very watchful. I would say, first of all, we don't give a guidance. So I won't be able to tell you where we are headed. But I would say that it's reasonable to assume that we'll be somewhere around what you see as our margins.
That's helpful. One last one. Wheat flour, the chart that you've shown indicates year-over-year inflation, whereas our interactions with other large buyers of wheat indicate that it's broadly at similar levels as last year. So what is the cost of inventory for you? Did you procure it at the beginning of the year so you are not affected by the recent inflation? And second is, if you can explain that chart.
No, so we do buy covers. We do some strategic buying, which helps us neutralize some of the inflation that others see. Manoj is here. If you have a question for him, he'll be very happy to answer.
Sure. So the chart you're showing is more like spot price, right? It's your cost of consumption or your procurement cost of the covers that you have would be much lower, right? So you would not be witnessing any inflation. Is that right understanding?
Those are our numbers. Those are our internal numbers.
I see. Okay. So this is your chart of your procurement cost. Understood.
Yes. Yes. Yes.
That's helpful. Thank you so much.
Yeah.
Thank you. The next question is from Kunal Vora from BNP Paribas. Please go ahead.
Yeah. Thanks for the very interesting presentation. First, I wanted to understand the 1 lakh crore Britannia flavored market size which you're talking about. How much is biscuits? What part of dairy you consider in bakery, whether it's mostly organized or includes unorganized? And also, if you can give us an indicative market share in each of the categories.
That's a very tough question. We'll have to do a chart for you. But biscuits would be what, about INR 35,000 crore? INR 40,000 crore?
INR 45,000.
Biscuits would be about 40% of it. All of the other categories: bread, cake, rusk.
Dairy.
Dairy. All of that would be the rest. But I will not be able to answer which categories, how big, and what is the market share in each one of those categories. But if you want any specifics on cake, rusk, etc., cake, we have about a 35% share. Rusk, we have about a 23%-24% share. Cheese is a small share, much smaller, at about 13%-14%. So that's how we've calculated it. But it's a good point. Maybe we'll construct a chart for you the next time.
Thanks. That'll be very useful. Second and last question, if you can talk about your acquisition strategy both in traditional space as well as D2C brands in the food space, if there's anything which you'd like to consider. I'm also thinking about categories like cheese and mayo spreads. Are there any interesting opportunities there?
From an acquisition standpoint?
Yes. Thought process on both traditional as well as D2C brands.
Direct to consumer brands? Well, we've just gone into a joint venture with Bel. So first, we would want to make sure that whatever Bel has in their portfolio, we look at bringing those into India. They are obviously dairy experts, and they understand cheese very well. But yes, all of this may or maybe not because that's not really dairy. But a lot of other cheese categories, whether it's cream cheese or cheese spreads or the one that we've launched, which is the sachet, the INR 10 sachet, which is also a spread, these kind of things, we would first like to bring into the market. And then I don't think there are enough innovators in the dairy category in India which are ready for acquisition. I think we'll have a much better portfolio with Bel as our partner.
Okay. Growth will be mostly organic. Inorganic is not really a consideration right now?
Not in the dairy category.
Overall at a company level?
Company level, if there are opportunities which give us entry into categories which are adjacent to the ones that we operate in, we will be happy to look at it. If there are interesting opportunities around us in countries around us, we'll be happy to look at that. We are evaluating some of those. We will continue to do that. We will not do it. We will not break the bank on any of these opportunities. They have to come at the right price. I think private equity money is drying up. There might be opportunities in the future.
Thank you. The next question is from Tejas Shah from Spark Capital. Please go ahead.
Hi. Thanks for the opportunity. So there are two dimensions of inflationary-deflationary environment. So one which all FMCG companies would have highlighted this quarter is that the competitive environment is heating up because of unorganized players or getting more aggressive. But the other dimension is how consumers behave. And usually, we have been taught by FMCG companies only that during inflation, they downgrade. But the deflationary environment, there is more incentive for them to upgrade or premiumize. So why is that not showing up? Or will it take time for premiumization to come back again?
Premiumization, see, within our portfolio, we are a reasonably premium portfolio, right? And what we've seen even in the last six months is that it's not affected. If you look at the mix, the mix has only moved towards the premium brands. It's not like the popular brands or the cheap brands are jumping up in every portfolio. See, even the B players, while they would have gained in certain pockets, I don't think it adds up to the base of the pyramid becoming much larger than what it was. So to that extent, I don't think there is downgrading happening in the market.
Got it. And then second and last question. So you spoke about snacking. We have been trying for two years. So just wanted to understand, when we get into a new category, which is the best synergy or the top synergy that we look for, which is distribution synergy or brand synergy that you prioritize?
Well, the way we looked at it was that if snacking, as you know, is basically transportation of air. So we were looking at a model whereby we could set up numerous factories all across the country and have a smaller radius of distribution and hence have an advantage over all of the larger players who have a limited number of factories. So that's what we are trying to do. But frankly, I don't think we are. The jury's still out. We're still not 100% confident about whether this is going to work because differentiation is also very important. While we have launched certain differentiated products, the issue with snacking is that the local players, despite the fact that they might have costs which come out of replenishment, but they still have very high margins, very high discounts, etc.
So only if we are able to counter all of those with the mix that we are bringing to the market will we move forward. Otherwise, see, on one side, you've got the larger players who are obviously much stronger brands, but they are losing out to the smaller players because of the price play and the grams in bag, etc. On the other side, you've got these guys who are throwing money in the market. So we don't want to be caught in this lockdown. Only if we find a way to balance and make money out of this will we move forward.
Got it. Thanks.
Yeah.
Thank you very much. We'll have to take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thanks, everyone, for spending time with us on this call today. We look forward to interacting with you again in the future.
Thank you very much.