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Sugar branding: A not so sweet option?

Sugar branding: A not so sweet option?

Author | exchange4media News Service | Friday, Dec 24,2004 8:42 AM

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Sugar branding: A not so sweet option?

Big sugar companies find branding bitter. Bajaj Hindustan Ltd, the country's leading producer, believes that a strong future in sugar is linked to efficient commodity play. Not branded sugar sales.

It is logic, quite against conventional business trends that advise commodity players to break free of commodity cycles through value addition and branding. Arguably, the company can access a modest distribution network through Bajaj Sevashram. Yet, a senior Bajaj Hindustan official who did not wish to be named, quipped, why look that way if branded sugar is unattractive?

His Nariman Point office came across as the bitter end of a triangle, the other two points of which were ironically, in sweeter times. Not far from there, Hindustan Lever and Tata Chemicals have had success with branded salt. According to Mr Satish Sohoni, Chief Operating Officer (Food Additives Business), Tata Chemicals, for a brand to be successful it must be strong, identified with a product enjoyed by customers and belong to a company with distribution muscle and the ability to track the three things customers do - think, talk and act.

All this, however, follows the basic premise for branding - product differentiation.

In salt, that differentiator came with the iodisation movement. The addition of iodine gave salt consumption a greater level of importance than the regular, bringing it under the Prevention of Food Adulteration (PFA) Act. In turn, that set iodised salt apart in the market place and focused customer attention on packaging, Mr Sohoni said.

With considerable help from Government policy, salt thus moved in time to almost wholly packaged sales. Senior FMCG officials included items such as basmati rice and tea to the list of successfully branded commodity items. In their case too, what aided branding was the uniqueness of the branded product, basmati being different from other strains of rice, much the same way a cup of Darjeeling tea is what it is and nothing else.

Sugar, a rather monolithic item (syrup, powder and cube sales are small; white plantation sugar forms the bulk of sales), not only lacks strong product differentiators but sharpens the problem through price gaps, as from PDS to packaged and on to branded sales.

Few sugar companies have entered the branded space. Sample this scene at Suryodaya super market, Churchgate in Mumbai. A one-kg packet of branded sugar, double refined and sulphur-less, cost Rs 25. An unbranded one-kg pack cost Rs 19.50. What's more, the branded packs were from mid-October, the cheaper unbranded ones were a more recent mid-December.

The commodity has a strange price-demand relationship. Sugar is sweet and in excess, is bad. Checking sugar intake is an established precaution. Yet, each time the price of sugar increases, consumers complain bitterly. On the other hand, studies exist to show that the pinch on household expenditure due to costlier sugar is small, given the modest level of consumption per household. After all, sugar is an additive, not the main food.

Complaints on price notwithstanding, the consumption of sugar has only risen. "Sugar demand is almost price inelastic," the Bajaj Hindustan official said. He feels the consumer's mental block to costlier sugar - wanting the luxury of sweetness at the cheapest price - is its biggest obstacle to value addition. At one stroke it dilutes the case for product differentiators as platforms for branding.

On this bearish price scenario, juxtapose the cost of launching a big brand. "Sugar has many uses but to get into that space we must go into a FMCG model,'' he said. With economics not hospitable for a direct foray by individual sugar companies, one option would be co-branding with a FMCG player. According to the senior official of a leading FMCG company, that needn't be easy because typically a food item is chosen for business on the strength of how centre-of-the-plate it is and what capacity for value addition exists.

Sugar is centre-of-the-plate. But can you make money from value addition, when consumers here are conditioned to the world's lowest sugar price? Further, what relevant value addition do you offer when the commodity is linked to ill health. Despite this, some FMCG officials insist, viable business models were there for branding sugar, including royalty-based technology tie-ups to introduce convincing product differentiators.

Bajaj Hindustan has a bankable reason to chase efficient commodity play in lieu of costly branding. Demand for sugar is rising and in a year or two, India is expected to regularly import the product. That spells greater space at the commodity level. Is tapping it a better option to branding?

Tags: e4m

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