Private equity firms generally provide growth capital, handhold investee management (mainly in financial decisions) and exit the business at the right time.
However, PE firm Everstone Group has taken a different route – taking up a daunting task of reviving 52-year old Modern Foods brand that popularised breads in India.
As the promoter of Modern Foods, it has charted a slew of initiatives, including launch of value-added products, extension into newer categories and expansion into newer geographies. For Everstone, whose core competency is equity-funding, the task is to succeed where an FMCG major like Hindustan Unilever failed in growing an iconic brand.
In mid-1960s when Modern was launched, bread was a very nascent category with unbranded SMEs supplying to local bakeries. When the government sold off Modern to Hindustan Unilever in 2000, the sales of the company stood at Rs 160 crore. After 16 years when Everstone bought the brand from HUL, the company had just grown the revenues to Rs 250 crore. By then, a sub-Rs 1000 crore market had grown to Rs 6500 crore.
Modern has now set an ambitious target of quadrupling the turnover to Rs 1000 crore by 2021. Ask Aseem Soni, CEO of Modern Foods about what is it that Modern lacked all these years, he will tell you “focus”. “For us this is our bread and butter. We are putting all our focus on growing this brand,” he adds.
In the 35 years Modern remained in the public sector, the company achieved sales of Rs 160 crore, but with losses amounting to Rs 48 crore. HUL streamlined the processes, sized the company and made it profit-making. But by then, the priorities of HUL had changed. As per the new policy, the company started promoting its global “power brands” and Modern was left out. Further, HUL was into long-shelf life products and a short-shelf life product like bread needed a separate set of supply chain infrastructure.
HUL retained the brand in markets where it claimed a dominant share. But pulled out from several markets where it had either low market share or was loss-making. This included cities in the north and central India, including Delhi.
“Everstone has a fine model. It works with investee companies to build the business. It has a team of professionals who have expertise in that particular business,” said Soni
Rajeev Shukla, managing director, Everstone Capital Asia, has been with Unilever earlier and he is now closely working with the management.
“We brought Canadian cosmetic brand Faces to India. We also built Burger King from scratch in this market. In a 100 per cent buyout we have more freedom to do things,” says Shukla. After buying out Modern, 10 to 15 per cent of the SKUs, which were not viable were withdrawn from the market. “We will not go on adding new offerings, but have the right products,” adds Soni. While retaining bread’s positioning in the mass-market, the company will expand its offerings of value-added products and price it accordingly. Value-added bread products will account for 30 to 40 per cent of the sales by 2021 and ensure healthy margins for the bread business.
However, the bigger plan is to go beyond breads. The company wants to explore more categories in packaged foods like noodles, biscuits, cakes and croissants. It has already launched packaged chappathis and parattas in Kerala and parts of Tamil Nadu and has sold 16 million pieces in eight months.
Modern will regain its pan-India presence.
Currently, Modern is limited to south and parts of the western region. Financial backing of Everstone will ensure that the company is adequately funded to expand the distribution and enter new categories.
“We have invested in getting right people, plant and machinery to ensure quality and other capabilities like IT, training and marketing. Everstone has $3.3 billion assets, of which $2.5 billion is private equity. Bulk of our investments are in India,” said Shukla.
However, a private equity fund fully owning a company is not very common in India. As a private equity firm it has not yet planned its exit from the company, but does not dismiss possibilities of selling off the business to a global company seeking entry into the Indian market, once the company grows to a significant size.
sangeethag@mydigitalfc.com
