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Competition, multiple taxes, high input costs hit biscuit industry hard
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Wednesday, 16 June, 2010, 08 : 00 AM [IST]
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Our Bureau, Mumbai
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Biscuit is an any-time snack consumed by almost 90 per cent of the country’s population. At tea-time, biscuit is a must in all families. Biscuit is the main snack for school-going children, the sick & the old, and people on the move. However, the per capita consumption of biscuits in India is only about 2 kg compared to more than 10 kg in the western countries and about 4.5 kg in South-East Asian countries. This shows that there is a huge potential for the growth of the biscuit industry. However, with the growing demand for fast food, the growth of the biscuit industry is stagnating. Burgers, pizzas, and ice creams are more in demand among the youngsters than the traditional biscuits. According to a recent NCAER study, biscuit is now predominantly consumed by people from the lower strata of society, particularly children in both rural and urban areas with an average monthly income of Rs 750.
Glucose biscuit, in fact, is a good substitute for a meal for children in poor families. It contains the necessary nutrients in order to sustain life. It is tax-free and priced at Rs 5 for a packet of 38 gm, and Rs 2 for a packet of 16gm. Get a packet of glucose biscuit and eat it straight or dipped in a cup of tea or coffee. About 35-40% of biscuit is manufactured in the unorganised sector catering to the rural and urban poor. They are cheap, affordable to every section, though poor in quality.
Biscuit industry which was in the reserved small-scale sector was unreserved in 1997-98, in accordance with the recommendations of the Abid Hussain Committee. The industry consisted of half-a-dozen largescale manufacturers, around 50 medium scale companies and small-scale units ranging up to 2,500 units. The unorganised sector is estimated to have approximately 30,000 small and tiny bakeries across the country.
According to latest figures, among bakery products biscuits occupy an important place with annual production of 3 million tonnes and is estimated to grow over 15-17% in the next few years. India ranks third after the US and China among the global biscuit producers. The organised sector is valued at Rs 8,000 crore and accounts for 65% of the production. According to available data about 80 per cent of the biscuits are produced by small-scale sector comprising both factory and non-factory units. Competition from the unorganised sector that accounts for 35-40 per cent of the total market share is a major challenge for the players in the organised sector. As they do not have to pay any taxes, they have an advantage over the organised players.
Even within the organised sector, there is stiff competition. Originally, the major players were Britannia and Parle; together they held 82 per cent market share. As competition grew, ITC and Priyagold and several others forayed into the segment. There are several regional players who offer biscuits at retail prices, almost half that of established players. Their products are not necessarily innovative on taste, but are priced aggressively without compromising on quality.
Britannia, which is the market leader with a share of 40-45 per cent in the organised sector, sells a wide variety of products – Good Day, Tiger, Marie Gold, 50-50, Choco-chips, Choco-nuts, Little Heart, Nutri Choice, Bourbon, Nice Time, Pure Magic, Milk Bikis, Jim-Jam, Cream Treats, Time Pass and Digestive.
Mumbai-based Parle is a close second with brands like Parle-G, Krack Jack, Monaco, Hide-n-Seek, Magix, Kreames, 20-20, Nimkin, Chox, Digestive, Marie and Milk Shakti. It has a market share of 30-35 per cent.
ITC occupies the third position with as much as 10 per cent of the market in terms of value. Until ITC entered the fray, the biscuit industry witnessed very little innovation in premium brands like Marie and Glucose. In 2003, ITC launched Sunfeast and in 2004 the company followed this up with Sunfeast Milky Magic. More recently, the company launched Sunfeast Snacky and Sunfeast Golden Bakes. The company’s other specialities include orange-flavoured Marie and Marie Light, besides Dark Fantasy, Dream Cream, Sweet n Salt, Nice and Vita Special.
Priyagold ranks fourth closely following ITC with 7-10 per cent market share. From the Surya Foods group, Priyagold has established itself as a brand name to reckon with in North India. It has also established its presence in western India as well. The company’s products include Butter Bite, Classic Cream, Kids Cream, Bourbon, Marie Lite, Big Boss, Magic Gold, CNC, Cheese Cracker, Snacks Zig Zag, Don, Coconut Crunch. Cheese Bit and Chat Patta.
Anmol Biscuits is a popular brand of eastern and northern regions, having manufacturing facilities in West Bengal and Uttar Pradesh. Its products include: Lemon Mazaa, Funfill Choco Vanilla, Yummy! Milk Cream, Tip Top Kajoo Kurkure Masala, Coconutty, Thin Arrowroot, Marie, 2 in 1, Butter Bake, Cream Cracker, Dil Khush, Dream Lite, E-Time, Funfill Orange, Funfill Rich Chocolate, Golmol, Jadoo, Marie Time, Snackles and Milk Maid.
Some brands which have made a mark on regional markets are Bonn, Cremica, Biskfarm, Aliva from Pepsi, Digestive from UB, Duke, Bhagwati and Unibic.
Stiff competition, rising prices of inputs like wheat flour, vanaspati, sugar, and skimmed milk powder, coupled with multiple taxes and increasing packaging costs, continue to be the major hurdles for the growth of the Indian biscuit industry. Biscuit is comparatively a low margin food product in the packaged mass consumption goods (PMCG) sector. Because of competition among major players and also from the unorganised sector, the manufacturers are not in a position to increase the prices of their brands in proportion to the rise in input costs. However, big players have adopted a strategy by which they produce high margin products in cream variants and speciality biscuits to cater to the higher income group, and high volume low margin products like Glucose and Marie to cater to the low-income group. These companies are continuously using innovative methods to stay ahead of the competition.
Consumers today are highly health conscious. There is an increasing demand for healthy and nutritious foods. Therefore, along with the regular varieties, the biscuit companies have introduced digestive biscuits targeting the different age groups, the geriatrics and hospitalized patients. They function as meals between meals. Enriched with fortified dietary fibres, these biscuits have functional and technological properties.
Biscuit is one of the highly taxed products in the country. Though glucose and other cheap varieties are exempted from tax, premium biscuits are taxed heavily, as high as 26 per cent (12.5% VAT, 8% central excise duty and other local taxes). The industry has a genuine grievance that while biscuits, which are generally consumed by children and the aged, are levied 12.5% VAT, other products like ice cream, condensed milk, pasta, ready-to-eat packaged food etc. have been exempted from tax. The industry associations like Indian Biscuit Manufacturers Association (IBMA) and Federation of Biscuit Manufacturers of India (FBMI) want the VAT on biscuits reduced to 4%, if not made it zero. According to FBMI, most of the food products, which had been chosen for excise duty exemption or 50 % reduction in duty were comparatively high-end food products having no nutritious value and consumed by affluent people. On the other hand, excise duty continues to be imposed on biscuit, which is one of the cheapest nutritious food products consumed by economically weaker sections in both the urban and rural areas, including children and senior citizens alike. Besides, due to stiff competition, biscuit companies cannot p
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