Private equity firm Everstone Group-owned FMCG business Modern Food Enterprises Pvt. Ltd is eyeing consolidation opportunities in the bread and bakery industry as the covid-19 pandemic has disrupted smaller regional brands with weak balance sheets.
Everstone had acquired Modern Foods from fast moving consumer goods (FMCG) major Hindustan Unilever Ltd in 2016. The company makes breads, cookies, cakes, buns, muffins and Indian breads under the Modern brand.
“It (covid-19) has given us an opportunity to evaluate interesting options that are coming up across the bread and bakery space as well as allied businesses. We think this is the right time and we are looking at inorganic growth quite actively,” said Roshini Bakshi, managing director at Everstone Group.
Modern Food has appointed South African bank Investec to advise it on setting up a strategic review and a growth roadmap.
“Investec has been put in place to help us as we put together our strategic path forward, especially with reference to acquisitions and the potential valuations,” said Bakshi.
Inorganic growth is a strategy that Modern Food has adopted in the past as well. Last year, it acquired Delhi-based baker Supreme Baker to establish its presence in the Delhi NCR market, while earlier it had acquired Cookie Man.
“We are getting inbounds from the west of India as well as the North, both of which are large bread and bakery markets. So we continue to look at opportunities as they come to us,” said Bakshi.
The covid-19 pandemic has given a strong boost to the company, which sells over half a million bread loaves daily across the country.
“We did over 30% higher business this year, compared to April and May of 2019,” said Aseem Soni, chief executive officer at Modern Food.
“In this new environment consumers started trusting brands that have a long legacy. The smaller players in the bread industry had to shut shop because they had a huge issue in terms of costs going up, with stricter hygiene standards and other constraints,” he added.
Covid-19 has also boosted sales of the bread maker’s health and wellness portfolio as the pandemic led to consumers becoming more health conscious.
“The health and wellness portfolio of every company, including breads, was more in demand than the basic white bread. We have two interesting products in our portfolio – 100% Whole Wheat Bread AND Hi-Fibre Brown and both these products took off in the lockdown period,” said Soni.
In the post covid-19 world, this trend of increased focus on health and wellness is expected to accentuate, he added.
Currently, health and wellness products make up for just 20% of the company’s business but they are a faster growing segment compared to white breads.
The company is now focusing on expanding its health and wellness portfolio and is working on a bread product to help boost immunity.
“The AYUSH ministry has clearly recommended ingredients that help build immunity, things like turmeric, black pepper, ginger, cinnamon, jaggery, which are traditional Indian products that help build immunity. Currently, we are working in the lab to see if we can accommodate a smart and palatable combination of these ingredients into bread and come up with a bread that helps build immunity in the medium to long term,” said Soni.
While sales are on the upswing, restrictions imposed during lockdown and disruptions in supply chain and labour market have meant that costs have shot up.
“Broadly it (lockdown) would have added 5 to 7 percentage points (to the costs) from a gross margin percentage perspective, which is significant,” said Soni but added that the company doesn’t intend to pass on the costs to customers at this point of time.
“We think that some of these costs are temporary, such as higher raw material cost, higher packaging costs. Some of the costs such as the hygiene costs are more long term but that cost should get compensated by growing business.”
