Oct 12, 2011|
The pie of biscuits: Too large to miss
Packaged foods are something that has caught the interest of nearly every company in the FMCG space. But the largest category in this sector is none other than the biscuits industry. Valued at Rs 124 bn (Nielsen), the biscuit is the largest category in branded & packaged foods. Interestingly, this category is growing faster than the overall food industry. A big reason for this is the appeal of biscuits in our society. Biscuits are consumed by every age-group as a tea-time snack as well as an impulsive snack in-between meals. The universal popularity of biscuits is reflected in the high penetration levels of 85% and 65% in urban and rural markets, respectively (Indian Biscuit Manufacturers Association, IBMA).
In terms of the type of biscuits, the market has been pre-dominantly characterized by the glucose and digestive biscuits. However, in recent times this segment has seen its share fall from 80% to 70% of the overall market. In contrast, the smaller indulgence segment consisting of cream, chocolate biscuits and cookies is picking up momentum. This has been backed by rising disposable income and growth in modern retail format.
Source: Ministry of Food Processing Industries
Now that we know what the biscuit market looks like, we are sure that the readers would be interested in knowing which companies are benefitting from this growing market. The organized market currently accounts for 65% of the overall industry (IBMA). The market is dominated by Parle Products (an unlisted player) and Britannia. They hold 45% and 38% shares, respectively (Nielsen) of the overall biscuit market in the country. ITC is a relatively new player and reportedly has a market share of 10%. Other regional players include Surya Agro Foods (Priya Gold), Dukes, Cremica, Bon and Anmol.
In terms of the top line, biscuit sales have grown robustly recording double-digit increases during the each of the years 2005-11 (IBMA). Revenues of Britannia increased at a compounded annual growth rate of 17% in the period 2005-11. Parle's topline grew by a handsome 27% annually in each of the years 2005-10. But the stellar performance in the sales has not really flowed to the bottom line. Britannia's operating margin slid from 10% in 2007-08 to around 6.5% in 2010-11. Even Parle Biscuits, the market leader in glucose biscuits, saw its operating margin almost halve from 14.6% in 2007-08 to 7.6% in 2009-10. The main reason for this has been commodity inflation which is responsible for eating away into the industry's profitability. Due to the price sensitive nature of the customer, companies have been unable to pass on the increase in input costs entirely. As a result earnings of the biscuits companies have been under cloud since 2008-09.
The major inputs for the industry are wheat flour, milk, sugar and vegetable fats/oils. Growing demand and rising prices of inputs and labor have led to hardening in prices of these commodities. Wheat flour price as reflected by the Minimum Support Prices (MSP) set by the government jumped by 44.7% ( point to point) over the period 2007-11. Inflation in milk prices that remained at 4.5% during 2001-05, shot up to 7.9 % for the period 2006-10 and further sky-rocketed to 20.6% in 2010-11. Sugar prices have catapulted by 113% during the period 2007-11. With nearly half of the edible oil being imported, its prices are presently ruling at a 56% premium to 2007-08 levels.
Despite the steep jump in costs, biscuit manufacturers were not able to fully pass on this increase. This was on account of the highly competitive and price-sensitive nature of the Indian market. This can be gauged from the fact that biscuit prices have risen by only 25% in the past five years. There is an emerging demand for non-glucose biscuits as well as biscuits based on wellness plank which will drive future growth for biscuit manufacturers. To meet the changing demand dynamics, companies have been expanding in the non-glucose biscuit segments. Parle, a name that has been synonymous with glucose in India forayed into cream and cookie segments to consolidate its leadership position. It expanded its portfolio to 20:20 cookies, Hide & Seek and Hide & Seek Milano chocolate biscuits. Not to be left behind, Britannia has launched premium biscuits Pure Magic and Treat-O. The company has changed its focus towards health & wellness through initiatives such making all its biscuits trans-fat free and fortifying most of them with vitamins and micro-nutrients. Recently, the company even launched diabetic-friendly biscuits.
Despite growing demand, the per capita consumption of biscuits in India remains low at 1.8 kg as compared to 2.5 kg, 5.5 kg and 7.5 kg in South-East Asia, Europe and US, respectively. Therefore it is hardly surprising that FMCG companies both domestic and multinational are vying with each other to grab a share of the growing pie. In the past one year, UK-based United Biscuits launched its McVitie's range of digestive biscuits and GlaxoSmithKline Consumer Healthcare launched premium cookies and cream biscuits under the Horlicks brand. Kraft Foods recently launched Oreo biscuit brand into India through its local arm, Cadbury India.
While the foreign incumbents have the appeal of variety, the established players have the advantage of having a robust distribution network. But with a pie this large, one thing is for sure. Competition will increase in the coming years. Which brand will survive and which one will crumble away is something only time will tell.
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