India: El Dorado for Biscuit Manufacturers

Per capita consumption of biscuits in India is currently only 2.1 kg per year as against 21.76 kg in Ireland

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Savouries

October 15, 2018

/ By / Delhi

Biz@India

October 2018

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Third largest in the world, the Indian biscuit industry is moving rapidly towards higher value or premium segment. Faced with competition from imported products, the Indian manufacturers are also focusing on the new needs of the urban and middle class.

In just over eight decades of existence, the biscuit industry in India seems to have come full circle. As the second World War got underway in Europe, in 1938, a small confectionary company, located in western suburbs of Mumbai, introduced the first biscuits in the Indian market. Though a basic glucose biscuit, Parle Gluco, was unique in the market and was perhaps targeting the British expats in India more than the Indian consumers themselves, who had a reticence to eating industrial products, mainly due to lack of familiarity with them.

However, by the time India became independent, barely nine years later, Parle Gluco had established itself as a strong brand amongst the Indian consumers. Over time, the brand single-handedly commanded over half of the total Indian biscuit market. Even today, Parle G, as the brand has been renamed, remains a very strong player, commanding a fifth of the INR 252 billion (Eur 3.2 bn) Indian biscuit market and accounting for over a third of the sales of Parle products.

The main reason behind Parle G’s unmatched success is that the brand is also ranked the top food brand in India and remains appeal of the masses. With its price remaining affordable for practically every Indian consumer, Parle G, has become a sort of staple Indian food, with most mothers giving it to the children with their afternoon glass of milk, while adults still love to dip the biscuit in their tea and eat it.

Moving up the value chain

While Parle G continues to dominate the mass-market, despite competition from other domestic brands. The Indian biscuit market has also been evolving over the past two decades, with introduction of several premium products, mainly cookies and cream biscuits.

Having competed fiercely over the mass market products, Parle’s main rival in India, Kolkata-based Britannia, has been focusing on bringing newer products to the premium market. Last year, Britannia relaunched its premium cream biscuit brand, Treat, to fight the increased competition from its main rivals, Parle and ITC. The relaunch came with a marketing budget of INR 500 million (EUR 6 million), besides a complete repackaging and focus on the two most popular flavours, vanilla and chocolate.

The relaunch is aimed at strengthening Britannia’s presence in the premium cream biscuit market, which accounts for only seven percent of the total biscuit market in India, but is the centre of attention due to the growth potential that it offers. This niche commands 30 pc of the entire media spend by biscuit companies in India. Britannia says it wants to increase its market share in this category from the current 35 pc to over 50 pc within two years. Britannia is hoping the relaunch will help it get there within the defined time frame.

Premium biscuits now account for over 60 pc of the Indian biscuit market and this trend is set to grow faster

Premium biscuits now account for over 60 pc of the Indian biscuit market and this trend is set to grow faster

Britannia is not the sole player looking at tapping the premium segments. Mondelez, through its Oreo brand amongst others, as well as ITC and of course Parle are also tapping the higher segment of biscuits as consumers in urban areas begin to trade up. Premium biscuits now account for over 60 pc of the Indian biscuit market and this trend of moving higher in value chain is set to grow faster, fuelled equally by demand as well as supply.

Others, including domestic players like Bakeman’s, Champion, Kwality, Priya and multinational corporations (MNCs) like SmithKline Consumer, Kellogg’s, Sara, Heinz, Excelsia (Nestle) and United Biscuits are also targeting the premium category more aggessively.

Not just the large, industrial players, even the unorganised biscuit producers are focused on higher value goods. Neighbourhood specialist bakers such as Karachi Bakery in Mumbai or Kayani’s in Pune, as well as a host of others all over the country, have also begun targeting the higher value customers by introducing or focusing on exotic biscuits and cookies, often made of wholegrain cereals or a mix of cereals or the coarse cereals that had almost disappeared from the Indian kitchen but have been staging a strong come back of late.

These stores have an advantage of rather focused clientele, distribution in the neighbourhood as well as lower cost of packaging and storing. They are also helped by their lower overheads due to limited staff and production, focused product lines and less expenditure on marketing, besides having family management.

Just around the corner

Besides being a quick snack, easy to store and transport, biscuits have penetrated the Indian market like few other Fast-Moving Consumer Goods (FMCG) products. The penetration of biscuits and cookies, in both the urban and rural India, is extremely high, with 94 pc of stores in urban areas and 85 pc of outlets in rural parts stocking the snack.

In parts of rural India, especially in the less affluent eastern and central parts of the country, even today, the basic biscuits like Parle G often act as an entire meal, rather than a tea-time snack. Farmers take biscuits along to the fields where the packet can stay on the ground and yet be good enough to eat later, which is not always the case with food and other snacks.

To increase their margins as well as expand the market for premium category biscuits to the rural areas as well as smaller towns, many manufacturers have begun to offer their premium biscuits in smaller packs of 100 gm or so, priced below INR 15 in most cases, making it within the reach of practically everyone.

India is already the world’s third largest biscuit producer, after the United States and China and its market is evolving rapidly as consumption patterns, consumer tastes and preferences begin to vary. Yet, the country is home to the world’s most promising market. According to a report by market research firm Technopak the per capita consumption of biscuits in India is currently only 2.1 kg per year as against 21.76 kg in Ireland, which is the highest in the world. Even in the neighbouring Asian nations, the per capita consumption is more than double that of India.

The Indian market remains the El Dorado for biscuit manufacturers

The Indian market remains the El Dorado for biscuit manufacturers

Keeping a lid on prices

Despite higher disposable incomes, on the back of the economic boom that the country has witnessed for nearly 15 years, India remains one of the most price sensitive economies in the world. This poses a challenge for the biscuit manufacturers, as much as any other FMCG company, which has to keep a lid on retail prices, even though their own input costs – in this case prices of raw materials such as cereals, sugar, milk as well as operating costs including electricity, wages and equipment – keep rising sharply, nearly 5 pc a year.

 

Another problem for biscuit companies is the highly fragmented nature of the Indian market. Even though Britannia and Parle are market leaders, with a collective 70 pc of the market, over a dozen international, national and regional companies are battling over the balance 30 pc of the market. Another reason for the fragmentation of the market is the extremely diversified product portfolio, with nearly two dozen categories in the market, the companies find it challenging to focus on a particular brand and reach a certain critical mass. This results in higher expenditure on marketing and other promotional activities, eventually, shrinking the profits. Little wonder then that besides Parle G, no other brand in the country has any significant market penetration.

Also, due to price sensitivities and extremely low net margins, companies dont find it viable to have their exclusive retail outlets and hence unable to directly push their products to athe consumers. Despite the challenges, the Indian market remains the El Dorado for biscuit manufacturers and consistent growth over the past decades ensures that manufacturers will keep trying to be the first to bake the smart cookie.

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