Parle exits atta business, to focus on cookies now

Parle exits atta business, to focus on cookies now

Author | Source: The Economic Times | Saturday, Nov 25,2006 8:38 AM

Parle exits atta business, to focus on cookies now

Indian biscuits major, Parle Products had to exit the atta market recently after failing to cash in on its brand equity and distribution network in the foods market.

The 60-year old mass-market biscuits maker, which had entered the market in '03, was unwilling to undercut competitors to scale up volumes initially. Aggressive marketing strategies by competitors such as HLL, ITC and Shakti Bhog, with deeper pockets, forced Parle to desert its backward integration plan.

Also, Parle had to refocus on its core business, biscuits, where competition had got fiercer with the entry of ITC. As part of its entry market strategy, ITC was not only offering biscuits at a lower price but also showering freebies, despite rising input costs. Consequently, none of the brands were able to hike prices and cover costs to protect bottomlines.

The company saw tough competition from the organised brands and a host of private labels from food retailers like Food Bazaar, Spinach etc. Parle's brand was priced at more or less the same as compared to other brands. A 2 kg pack of Parle G atta was being offered at Rs 35.50, while a Rs 5 kg pack was priced at around Rs 90.

Parle was also unwilling to undercut competitors to push volumes, an entry-market strategy, usually adopted by most marketers. The atta market has been a tough battleground for several marketers.

The recent entry of players like ITC and ConAgra, besides the existing ones like HLL, Pillsbury and Cargill have intensified competition in a market where margins are wafer-thin and the only way to profits are volumes.

The Indian atta market is estimated at around 45 million tonnes, of which branded atta is only 3 lakh tonnes, or less than 1%. Demand for branded atta has picked up and the overall market is estimated to be growing at over 12%.

On an average, a 5 kg pack of branded atta is sold in the range of Rs 87-90. “The price fluctuates widely depending on the scheme being offered by the company. If a competitor drops prices, all the brands follow suit. There's not much choice for these companies as most stockists refuse to push the uncompetitive brand,” sources said.

Regular purchasers of the branded attas are institutional buyers like hotels, airlines or food caterers. However, there are local suppliers in all majors markets like Mumbai, and Delhi, who have a loyal customer base.

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