‘Parle-G brought a disciplining factor in the market’
October 24, 2009
Pallabika Ganguly (ML): Over a span of 15 years, you have kept the price of Parle-G unchanged at Rs4, despite higher input costs. At a time when flour prices have increased to Rs15 per kg from Rs5 per kg; sugar prices have gone up to Rs30 per kg from Rs5 per kg; vegetable fat prices have multiplied to Rs70 a kg from Rs15 a kg and electricity cost has increased to Rs6 per KWh from Rs2 per KWh, how do you manage the keep prices for Parle-G intact?
Mayank Shah (MS): Parle-G was launched in 1993 with an objective to make biscuits affordable to Indians and we will follow this objective life-long and maintain our price in lines with the market such that the biscuits are available to the least common denominator.
In today’s scenario when the commodity prices are increasing drastically, all food manufactures, including Parle, are facing tremendous challenge in maintaining the price and managing the bottom-line. Edible oil prices have gone down from last year, sugar prices have gone up significantly and wheat flour prices are reasonably low.
Being the world’s largest biscuit manufacturer, we have to look at multiple things to manage our bottom-line and we are proud to manage it efficiently. To manage your bottom-line, you need to get the best deals for the raw material in the forward market, even look at volumes that can justify mass production, economies of scale and maintain your logistics cost.
We manage our production very efficiently as we have 10 manufacturing facilities and more than 60 contract manufacturing facilities across the country. When we talk about Parle-G, we do not look at bottom-line at all. In last two years, when we had to take an indirect price hike, we reduced Parle-G’s weight to 82.5 grams from 100 grams. Mostly you can say that our other products like Monaco, Krackjack, Hide & Seek and Hide & Seek-Milanogive us healthy margins which in turn helps us to keep Parle-G’s bottom-line intact.
ML: How big is the biscuit market and how much market share do you enjoy?
MS:In India the biscuit market is 18 lakh tonnes per annum in terms of size and Rs11,000 crore-Rs11,500 crore in terms of market value annually. We have more than 40% market share.
ML: Competitive price scenario has forced other manufactures to keep the price tag at the same level. In that case, in order to gain or retain market share, what are your strategies?
MS: Prior to 1996, there was no competition for our brand. Britanniacame up with its brand Tiger in 1997 and ITC Foods came up with a brand Sunfeast in 2003—we could have increased the price before our competitors came into the market but we did not do it because our objective behind launching Parle-G was different.
Parle-G brought a disciplining factor in the market which did not allow the competition to increase their prices. They tried to increase prices but were not successful because of our pricing policy for Parle- G and in the end, the competitors also have to keep their prices low.
ML: You have changed your packaging from wax-coated paper to bi-axially oriented polypropylenepapers. Does this change help you to maintain the margin?
MS: Yes, we have experimented with the packaging to keep the cost low. Currently our packaging cost is about 10 paise.
ML: Do export prices protect your margins, as in the US your famous brand, Parle-G is sold for about $2?
MS: We do not decide prices for our product in the US. We sell it through distributors who price it accordingly. Exports contribute less than 5% of our total turnover.
ML: How many contract manufacturing factories do you have overseas?
MS: We have three contract facilities in neighbouring countries, one in Bangladesh and two in South Africa.
Two years ago, there was a lot of demand from these areas so we decided to start manufacturing in these countries. But our major export takes place from India.
ML: How much biscuits do you sell annually?
MS: We sell above 50,000 tons of biscuit every month, out of which 40,000 tons is Parle-G. So you can say we sell around 650,000 tons of biscuits every year.
ML: What about turnover? What kind of growth do you expect over the next few years?
MS: Last financial year, we reported a turnover of Rs35 billion and we expect it to grow at a compounded annual growth rate (CAGR) of 15% over the next five years.
ML: How much do you spend on advertising?
MS: Our advertising and sales promotion budget is about Rs500 million to Rs600 million per annum.
ML: You roped in Bollywood star Hrithik Roshan as your brand ambassador. Does it affect your advertising spend and are you planning other star endorsements?
Ms: Four years back our advertising budget was around Rs200 million-Rs250 million but after we roped in superstar Hrithik Roshan as our brand ambassador our budget more than doubled. Later, we signed Amir Khan and Darsheel Safary for our brand Parle-G because the character they played in Taare Zameen Par was similar to the message we want to convey through our brand, i.e. G for Genius. Other than these three stars, we do not plan to sign anyone, at least at the moment.