There is an anecdote about Modern Foods, the Hindustan Unilever bread and bakery division, which was recently acquired by Nimman Foods, an Everstone-controlled company, for an undisclosed consideration. HUL (earlier Hindustan Lever), swooped Modern up, way back in 2000 from the government, because, among other reasons, it had a strong research and development department. Well before eggless cakes became the norm with bakery majors, Modern, the rumour mills buzzed, had the recipe for it. Besides, Modern was already a leading brand in breads, ahead of private-sector labels such as Britannia. It was an apt acquisition, the HUL management believed.
A decade and a half since, the promise that Modern held out all those years ago seems undiminished. Although the driving force today is perhaps the growing potential in India's bread and bakery business and the brand power that Modern Breads still commands, more than a secret recipe for cakes and cookies. Sameer Sain, co-founder and managing partner of the Everstone Group, says, 'Modern is a marquee brand, with strong recall and a long standing history. Everstone is committed to making significant investments in not only unlocking the brand's true potential, but also, once again, managing it as an independent company,' he says.
Experts believe that it was the power of the Modern brand that led Everstone to buy it out from HUL. HUL and Everstone had been talking for a while, planning to set up a joint venture but eventually Everstone bought it over. Both parties are tightlipped about what drove one to sell and the other to buy, but it seems that HUL saw breads and bakery as too small a business to engage with while Everstone, aware of the intrinsic value of the brand, felt it could maximise its potential. The fund plans to leverage its goodwill and existing strengths, and wants Modern to spread its wings. It plans to take the brand, currently popular largely in South India, national.
At Rs 250 crore, Modern contributed barely 0.8 per cent to HUL's FY15 turnover of Rs 30,805.62 crore. By HUL's standards, the business was too small to merit the attention it deserved, prompting the decision to offload it. But the company was singing a different tune when it acquired 74 per cent of the brand in 2000, for Rs 105 crore, as part of a government disinvestment programme. The balance 26 per cent was acquired in 2002 for Rs 44 crore. HUL saw potential in the brand and the business and experts say it tried to grow the franchise over the past 15 years.
However, cracking the bakery business is not easy, experts say. According to analysts, HUL's bakery business was stuck in a fragmented market that included both national and regional players. Britannia continues to be among Modern's national-level competitors, though regional and local brands are a plenty, all vying for the consumer's attention.
Can Everstone crack the code in a competitive market? Co-founder Sameer Sain is confident it can. On the cards is a re-branding of the holding company, Nimman, to Modern by early next year, apart from consolidation of the company's operations. Those in the know say Everstone will put a separate management in place for Modern; it might also list the company in a few years. The plan is to increase the firm's turnover to Rs 1,000 crore in the next few years by aggressively tapping the bakery market. In other words, what Everstone is looking at is a four-fold growth in the next few years for Modern.
For this, the fund is expected to aggressively expand distribution, leveraging Modern's existing network of franchisees. Modern currently has 350-400 people, who will move to the new entity, persons in the know said. Under HUL, Modern's losses were reduced and operations rationalised. Sanjiv Mehta, managing director, HUL, in a statement at the time of the recent sale to Everstone said that Modern's bottomline had improved and that the private equity fund could take it to its next level of growth.
Market estimated at Rs 3,300-3,500 crore, with the organised segment at 40-45 per cent and the unorganised at 55-60 per cent
According to research firm Value Notes, the overall bread market has been clocking a 9 per cent CAGR over the past 3 years; market is expected to grow to Rs 5,300 crore by 2020
White bread accounts for 75%, brown 15% and fruit and other breads 5% each
- Both Britannia and Modern are key players in the organised bread market