Saturday, November 12, 2011

Cookies, Crackers and Creams

Srikkant, Ritika Nagar, Kaustubh | IIMS

Cookies, Crackers and Creams

"Right from our morning tea to our evening snacks, biscuit is one thing that compliments everything. By replacing sweets it has become one of the important parts of Indian family. With the dynamics of 2000 crores and 20 lakhs tonnes the industry is growing by 12 per cent CAGR year on year. Players like Parle, Britannia, and ITC are dominating the market with their products in various categories like Marie, Cookies, Crackers, Glucose, Milk, Cream and others."

Indian Biscuits Industry

The fact that the premium segment is growing, is making lots of players put innovative products in this particular segment. The other players in the industry are Cadbury with the launch of Kraft’s Oreo, PepsiCo, Priya Gold, Cremica, Anmol, Dukes, besides various regional players. The Biscuit industry like the others, is also switching from the ‘volume’ game to the ‘value’ game. With dozens of variants in biscuits companies are also price cautious. By outsourcing manufacturing of Oreo to local players Kraft Foods is cutting costs so that customer can experience Oreo biscuits for Rs 6. Also adding to the taste Unibic is launching a ‘chyawanprash’ biscuit this year giving customers a different experience. This story takes you through the changing trends in various categories of biscuit that includes cookies, crackers, etc.

Glucose Biscuit

More than 45 percent of production in India consists of glucose biscuit. Glucose biscuit caters to the mass as it is the cheapest processed food ever made in the world. The credit goes to the Parle Products which ventured into the biscuit sector more than 6 decades ago and established its Glucose-G brand as the leader in the biscuit market. In India consumer gets vast array of food in the price bracket of 1 to 5 rupees and glucose biscuit is one of that array. With the increasing popularity of small packs now there are packs available to fit everyone’s pockets. In-spite of the increase in inflation rate the glucose biscuit still costs rupees 4 or 5. Lots of factors are responsible for this i.e. the decrease in the excise duty on biscuits by the Indian government, enhancement of capacity by the manufacturer, decline in the margin by the manufacturers, and adopting different modes of cost cutting in terms of packaging, etc. The fight against the inflation is adding loss to the manufacturer of glucose biscuit. The industry growing at 12 percent every year hardly makes any profit because of the low margins.
One brand in this category has mystified all the advertisement gurus and even the customer. In spite of having the same shape, size, taste and look Parle G is still trusted by mothers and loved by children the same way for the past so many decades. The brand when started earlier was called Gluco Biscuit then changed itself to Parle G because of similarly named products in the market. After that the name Parle G has become a synonym for glucose biscuit. Bigger players like
Britannia have tried their hand at this segment with Tiger glucose biscuits but have missed out on getting a sizeable chunk of the market. The market share of Parle G has increased from 66 percent in 2005 to 76 percent in 2010 while other players like Tiger have seen a decline. Without much advertisement the brand has Established itself in the heart of the consumer and has set an example of brand credibility in the market. The brand followed the philosophy of keeping the product price low even if the customer is willing to pay more.

Cream Biscuit and Crackers:

Cream biscuits and crackers have traditionally been positioned for the upper segment of the market. The major players Parle, Britannia and ITC have had most of this market share amongst themselves. Parle has traditionally been playing the volume game by settling for lower margins in this segment. But ITC and Britannia have always positioned cream biscuits and crackers for the upper portion of their target segment. Cream biscuits from both Britannia and Sunfeast cost close to Rs 10 for 100 grams. Parle, however, only charges Rs 5 for its cream variants. Except for Hide and Seek, Parle has not taken a different strategy to this segment. The strategy of Parle has for the most part been the market penetration.

The erstwhile three party domination in this segment is under threat and the competition in this segment is poised to increase significantly with the entry of international companies such as the world’s number one confectionary maker, Kraft and soft drink giant PepsiCo. . This is not surprising considering that the biscuit market in India is worth 12600 Crore and still growing at a fast pace. Kraft Food’s Oreo brand is the largest (by value) and the most popular biscuits/cookies worldwide – especially in US, Europe and China. Now, they are set to be manufactured in India, via Kraft Food’s latest acquisition Cadbury India arm. GSK has launched high-end cream and cookies under its Horlicks brand, UK’s united biscuits have brought its digestive biscuit McVitie’s to India and PepsiCo is all set to launch a healthy oat-based cookie. In a nutshell, this high-end biscuit segment is starting to get crowded with the entry of MNC’s.

Indian biscuit industry has for long been dominated by the glucose segment, but, the cream and cracker biscuits and other healthy variants are gaining prominence in the recent years. The cookie and cream segment is growing at an impressive rate of 25-30% in comparison with the functional segment (digestive and glucose biscuits) which is growing at an 8% rate according to a recent study by the ICFAI business school. The product position of a segment has a lot to do with where the market is going to be and a quick comparison with a mature market like that of the UK, will give us a good indication of where the Indian biscuit market is going to be in the near future.

A recent research by Mintel (a Market Research Firm) on the UK biscuit market suggests a healthy trend in the sales of nutritional biscuits, crackers and cream biscuits. Within the UK sweet biscuits market, ‘healthier’ biscuits (which include lower fat and sugar varieties) dominate sector sales (£468 million), accounting for as many as a quarter of all sweet biscuits sales and increasing an impressive 16% between 2008 and 2010. Meanwhile, ‘chocolate biscuit countlines’ (biscuits which are individually wrapped) are the second biggest sellers (£381 million), followed by ‘everyday treat’ biscuits, the third largest sector at £304 million, according to the Mintel report.

A good look at this trend indicates the potential of the cream, cracker segment and the nutritional biscuits. These could be indications of how the Indian market is poised to shape up in the near future. With the demographic dividend, one would expect India to grow significantly in these cream and cracker segments meant for the younger generation.

The competitive scenario in the biscuit industry has indeed taken a nice turn with the entry of these MNC’s. However, it remains to be seen what kind of impact they can make in a market like India, where the game has traditionally revolved around pricing and distribution given that there is no significant product differentiation. Also, the MNCs entering India are targeting only the high end market through these cookies and cream biscuits, which might be a tricky move, considering that cream biscuits and crackers still account for less than 30% of the market in spite of the impressive growth rates discussed above.

Moving ahead and looking at the industry operations, there seem to be a variety of issues that the industry as a whole needs to contend with. First being the high
increase in the cost of raw materials and the competitive nature of the marketplace which doesn’t allow any price response to increasing input costs. The high variation in the tax rates across various states is another issue of importance. The Federation of Biscuits Manufacturers of India (FBMI) urges the Central government to reconsider its decision to include biscuits in the category of Revenue Neutral Rate (RNR), and levy 12.5% value added tax. It will be interesting to see how these issues are being addressed by the major players, with the international entrants adding to the competition.

Marie and Milk Segment

The Marie and Milk biscuits segment is one segment that has shown rapid growth and this trend is expected to continue. The Indian Biscuit market is pegged at about 20 lakh tonnes a year. Out of this, the size of the milk biscuits segment is 80000 tonnes. The segment occupies about 25% (13% for Marie and 12% for Milk) market share in the Biscuits industry. Traditionally, this segment has been a favourite among the customers through its diverse offering at low prices. Marie Biscuits are known for their health benefits since they are less fattening than flour and aid in digestion by adding fibre to the body. These biscuits are low on sugar and carbohydrates content which make them a healthy choice for mid meal snacking. The key players in this segment include Britannia, ITC and Parle Agro Limited.

A typical Marie pack costs about Rs 10 for about 150 grams, while a Milk biscuit pack costs Rs 5 for about 70 grams. The segment is known for competitive pricing and price wars among many of the players adopting market penetration strategies. Parle Products Limited is a recent example. In order to gain competitive advantage, the company has increased the weightage of the Marie biscuits at no additional cost. The weight of “Parle Marie” packets of Rs 10 and Rs 22 was increased to 144 grams and 392 grams. Earlier, the company was selling 132 grams and 372 grams packets for Rs 10 and Rs 22. The brand loyalty in this segment is very low and customers don’t mind switching their preference if they are getting good value for money option.

Promotion strategies play a very important role in this segment considering the intense competition. ITC has focused its promotion strategy around the television advertising. ITC’s Sunfeast brand generally uses celebrity endorsements such as endorsements by Shahrukh Khan for promoting its brand. Also many of the Sunfeast advertisements involve children. The main reason here is to strike an emotional chord with the young children since they comprise a majority of the buying customer group. ITC has been supplementing its television advertising with print and outdoor media advertising. Considering Parle’s promotion strategy, it stresses on the health aspect of the product and also it being the perfect accompaniment to chats, arguments, discussions and gossip sessions. Parle positions its ‘Digestive Marie’ as authentic Marie biscuits having five times more fibre than the regular Marie. Parle Products claims that digestive Marie keeps one active and light-footed all day. Existing players like Parle have realized the importance of advertising on their profitability position and market share. It has increased its advertising expenditure by roping in celebrities such as for its brand. Britannia promotes its Marie brand as one having perfect balance of taste, crispiness along with added minerals and vitamins for good health. Recently, Britannia has launched Milk Bikis Almond Cookies that specifically targets the young children positioned as important for children's growth and development.

The Federation of Biscuit Manufacturers of India (FBMI) has predicted a steady growth of 15 percent per annum in the next 10 years for the biscuit industry of India. Similar positive expectations are being maintained on the exports front. Considering that Marie and Milk segment occupy about 25% market share in the Indian Biscuit industry, growth prospects for this segment are also bright. However, the competition is heating up in the Marie and Milk biscuits segment with many foreign players such as United Biscuits entering the Indian markets. United Biscuits, Indian arm of the $1.6-billion UK snacks firm, has launched its Marie pack under the McVities brand. McVities has used celebrity endorsements to gain market share and fight strongholds like Parle Products and Britannia who have ruled the Biscuits industry for a considerable long time. UB group has brought in actors Bipasha Basu and Shriya Saran to endorse its McVities Brand. As of today, McVities has a 20% market share in the 80 crore digestive category. Similarly many other foreign players are playing the price card to establish themselves in the Indian markets. Considering these aspects, we believe that competitive pricing and differentiated value offering will be the key aspects that will separate the winners from the losers.

There is going to be a lot of hectic activity in the near future with various foreign and domestic companies trying to get their own bites of the biscuit market. The product lines and categories have ample room for differentiation and it is to be seen how each company comes out with their strategies. It would be interesting to figure out how brand loyalty is achieved in this segment where there are only a handful of names like Parle-G, Britannia Good Day and Hide N Seek which have managed to strike a constant chord with the ever changing preferences of the consumers.

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