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Confectionery: Eyeing the big picture - Views on News from Equitymaster
 
 
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  • Oct 13, 2001

    Confectionery: Eyeing the big picture

    The Indians have a sweet tooth and there are no two opinions about it. One only has to look at the number of sweet marts and local ‘mithaiwallahs’ in nearly every colony of every city or town. Even smaller towns and talukas have their own sprinkling of sweet shops. India accounts for almost 15% of 125 m tonnes of global sugar production and consumes about 13% of the same.

    Indians like to celebrate with sweets and they start at a pretty young age. While the west may be more calories conscious, the Indian kids start off with all sorts of sugar boiled candies. So ideally, the sugar confectionery industry should have been one of the largest and well developed. However, it is not so.

    Though the industry size is very large, almost 140 thtpa valued at over Rs 9 bn, it is littered with small, unorganised players who are mainly present in the lower end of the segment. The organised sector has only 50% share of this pie. This has been because sugar is a sensitive issue in India with government controlling the industry. The sugar confectionery industry too, has been reserved for the small-scale sector. To maintain quality one has to make huge investments and to justify that companies’ need volumes. The fragmented nature of the industry has proved to be a disincentive for many a branded player. However, this is slowly changing. Currently, the sugar confectionery market is growing between 8%-10% per annum.

    The confectionery market can be classified into three sub-segments:

    • Monos – hard-boiled candies, toffees, éclairs and jelly cups form 80% of the market.
    • Sticks – lollipops and rolls form about 6%-8% of the market.
    • OTC (Over the counter) – lozenges and digestive candies form 12%-14% of the market.

    The potential of the Indian sugar confectionery is too big to be ignored for long. In the last five years, the sugar confectionery has seen a host of new entrants into this segment. These include Perfetti, Cadbury and more recently Hindustan Lever. There have of course been traditional players like Parle, Parry’s, Candico, Joyco, Nutrine and Ravalgoan, but they too had been busy concentrating at the lower end of the segment.

    The confectionery pie
    Category Characterisitics Organised market size Growth Players
    Monos hard boiled candies, toffees,
    eclairs and jelly cups
    Rs 7,200 m 8% Perfetti, Cadbury, Nestle, HLL,
    Parle, Parry’s, Candico, Joyco,
    Nutrine and Ravalgoan
    Sticks lollipops and rolls Rs 500 m to Rs 700 m 8% More or less same as above
    OTC lozenges and
    digestive candies
    Rs 1,100 m to Rs 1,300 m 12%-14% P&G, Dabur, Perfetti,
    Parke Davis, Boots

    The entry of new companies like Perfetti changed the trend. In nearly five years of operations, Perfetti has emerged as the largest volume player for its parent the US$ 1.2 bn Perfetti SpA. Convinced that the Indian market needed the spice of new products in different segments, Perfetti has continued to launch a slew of new products like ‘Big Babol’, ‘Alpenliebe’, ‘Chlormint’, ‘Cofitos’, ‘Centerfresh’ and ‘Golia’. With slick packaging and continued ad blitz Perfetti made sure that the Indian consumer took notice. The strategy was to be present in all three sub-segments at different price points to attain a critical mass.

    Seeing Perfetti’s onslaught, traditional players like Parry’s, which holds 28% market share, also re-jigged their product folio and are trying to keep their market shares from being gnawed at. But even die-hard marketers like Cadbury admit that the Indian sugar confectionery market is no cakewalk. Cadbury should know, for this No.1 chocolate company has had a failed stint in confectionery market till now. Except for ‘éclairs’ it has not met with much success despite a media blitz.

    This is because confectionery is a complicated market where factors such as bulk sugar prices, government policy and mass-market distribution play an important role in driving the volumes. Cadbury had entered the confectionery scene with a lot of big hopes. After all, its parent is No. 4 in the global confectionary business with a strong presence in both the chocolate and sugar sectors through a mix of global, regional and local brands. Its sugar products are internationally sold as ‘Trebor’, ‘Bassett’, ‘Pascall’ and Cadbury’s ‘Eclairs’ brands. The parent has more than 300 brands under its stable. But all this did not help Cadbury make any head away in the Indian confectionery market (4%-6% share).

    When it launched ‘Googly’ and ‘Mocka’ it had hoped that these would generate the volumes and give it the platform to increase its confectionery folio. But despite the hectic ad campaigns, the products did not attain a critical mass. Added to that, the hike in excise duties from 8% to 16% made the business unattractive in terms of margins. As a result, Cadbury recalled ‘Mocka’ from the market.

    However, even Cadbury realises the vast potential of the confectionery market and thus cannot afford to let the opportunity go a begging. So after a few false starts, Cadbury is likely to take a shot at it again. ‘Frutus’ and ‘Gollum’ have already been introduced in the market. Even FMCG bellwether, HLL, is checking the waters under the ‘Max’ brand name.

    Worldwide confectionary market is worth over US$ 100 bn, bigger than the coffee market and bigger than the snacks and biscuits market combined. The confectionary market around the world continues to evolve and is particularly influenced by the fast changing lifestyles in developed markets and long-term growth in consumer spending in developing markets. India is small fry compared to the global numbers, but there in lies its potential.

    But despite all this, it would still be some time before the Indian sugar confectionery market comes of age. For one, the government policy is still a big disincentive for companies. For example, Perfetti India’s 37% revenues go in taxes and levies, which is quite high. 20% go in packaging costs. Thus to be a viable business one has to get the pricing points right on, with distribution channels in place so as to attain a critical mass. One small miscalculation, and no matter how big the promotional exercise, the entire experience would leave the player with a bitter taste in this sweet game.

    Secondly, almost all the big organised players have had an urban appeal, whereas research says that to gain scale and clout, the rural market is the key. All in all, the lure for sweetness lingers despite the odds as in the long term companies are eyeing the bigger picture.

     

     

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