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How the cookie crumbles

29-December-2005
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How the cookie crumbles

In an upbeat consumer market, competition from second-rung biscuit makers have put the brakes on the pricing power of branded majors who have been forced to absorb rising input costs. Smaller brands like Priya Gold, Anmol, Pushpak, Amulya are successfully scaling up volumes by being more innovative and offering higher business margins to dealers. Brands like Parle, Britannia and ITC are throwing in massive discounts and promotions to entice consumers.

Market leader Parle has managed to take the lead by innovating faster in packaging and products, while Britannia and ITC have roped in brand ambassadors to push their brands. The market has seen a double-digit growth rate of above 13per cent in recent months. Glucose biscuit prices have been virtually frozen for the past six years. Both Parle and Britannia had to roll back prices after hiking it early this year. “Consumers have higher disposable income but are extremely value-conscious. If a smaller brand can give them as much taste and quality as the branded majors at lower prices, a shift is bound to happen,” said a Mumbai-based distributor.

The market has got polarised in such a way that the premium-end and the low-end are recording higher growth rates. “It's a tough market. Most of the leading FMCG categories largely reflect the dynamics of raw material cost pressure and strong demand,” said an analyst. Rising input costs have begun exerting pressure on profit margins. Prices of flour, milk, sugar and oil have risen by around 15-20per cent in the past few months, hurting the already wafer-thin profit margins.

Analysts say bottomlines will be severely impacted unless prices are hiked or demand continues to maintain the current uptrend. Companies have begun cutting down on extra promotions and freebies offered with their brands to tone down costs.

The packaged biscuit basket is a Rs 2,500 crore industry. Parle-G leads in the glucose category which constitutes 50-60per cent of the biscuits market. Parle has a 65per cent volume share, Tiger (Britannia's Glucose brand) trails at 18-19per cent, followed by ITC at 10per cent. Consumers are upgrading from core glucose and Marie offerings to more value-added variants. Smaller players not just offer more variants but are also strengthening their packaging and distribution systems to compete with the branded majors. Modern retail formats have also ensured higher brand visibility, leading to a jump in business volumes in '05.

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