Breville Group Limited (Breville or the Group) was founded in 1932, and its initial focus was the production and sale of radios. In 1951, following the launch of television in Australia, the Group shifted its focus to the design and development of small kitchen appliances. This deliberate research and development focus explains much of the success of Breville today. The research and development activities are conducted out of Sydney and have resulted in the development of several iconic Australian kitchen appliances like sandwich makers, food blenders and coffee machines.
Today the Group designs, develops and distributes small electrical kitchen appliances which are marketed around the world. Global brands include Breville and Kambrook as well as third-party brands like Nespresso. Interests associated with Solomon Lew either own or control about 28 percent of the Group.
Innovation and premium product provide pricing power
A remarkable feature of Breville’s financial performance is the ability of a company based in Australia with such a small population by world standards, to compete Internationally in the manufacturing industry. Breville successfully competes with other leading global electronics companies that are based in mature markets in the US, Europe and China.
A key factor in Breville’s success is its focus on the premium end of the market by competing on product excellence and innovation, rather than on products where low cost is the main source of competitive advantage.
Breville believes that consumers should be able to produce and enjoy an amazing food product and should never have to compromise just because they are making their food product at home. By providing products of superior quality and by being a respected competitor based on product innovation, Breville earns attractive profit margins and generates superior returns for shareholders. In FY24 Breville earned a gross margin of 36.4 percent on sales of $1.53 billion. Breville’s return on equity over the past 2 financial years has averaged 15 percent.
Breville’s record of product innovation is evidenced by its invention of the first sandwich toaster, which was released in 1974 and found its way into 10 percent of Australian homes. Another first was its juicer capable of extracting juice from whole fruit in addition to its impressive espresso portfolio that has made cafe-quality coffee accessible to everyone without needing the skills of a trained barista.
Breville has hundreds of patented technologies and its investment in product development and technology services is currently running at 14 percent of sales and this investment enhances earnings quality by protecting margins on a market-by-market basis.
Geographic expansion has been a key focus since 2018
Revenue growth is being supported by Breville’s geographic expansion efforts, especially throughout Europe, which began in 2018 with Breville’s entry into Germany and Austria. Countries entered since 2018 grew their aggregate revenue by 30.4 percent in FY24 compared to overall Group revenue growth of 4.4 percent in the same period. The geographic expansion program has delivered a compound annual growth rate of 45.6 percent since its inception.
European sales grew by 13.8 percent in FY24 while sales revenue in the Americas increased by 5 percent across all categories. Since FY24 Breville branded products have been distributed through Specialty Coffee retailers in the US through a dedicated B2B portal. The Australia Pacific region recorded a 6 percent decline in sales volume compared to the previous financial year.
The future
Breville’s increasing diversified global footprint and its focus on product innovation and premium quality rather than product cost as a source of competitive advantage, means that consumers with higher disposable incomes are drawn to Breville’s products. This market positioning suggests that Breville may be somewhat insulated from the negative impact of a consumer downturn. This is because consumers in an economic downturn might view upfront investments in Breville’s products – coffee machines, ovens and juicers – as saving money in the long run.
These business attributes and market positioning have assisted Breville over the past five years to grow revenue and EBIT at an average annual compound rate of 15 percent and 13.8 percent respectively. Furthermore, Breville estimates that 70 percent of its revenue potential is unaddressed, implying that significant revenue growth in the decade ahead.
This revenue and earnings growth upside, backed up by Breville’s strong operating cash flow, its new product pipeline and consistent outperformance in new geographies, should deliver shareholder value accretion at least in the medium-term.
