With a broad demand slowdown dragging down the growth rate of most FMCG segments over the previous quarter, sales of cheaper biscuit brands have been hit particularly hard, say, industry representatives. But, the premium category, while slowing, has not been affected as badly.
According to data shared by company executives, while the overall biscuit category grew at nearly 10 per cent in the first quarter of last year, this rate slowed to 2 per cent in the April-June period of the current fiscal year. But, the impact has been felt primarily in the sub - Rs 100 per kg category, which account for around 35 per cent of the market. “This segment has fallen sharply, declining by nearly 10 per cent in the first quarter. In contrast, the above Rs 100 per kg category saw sales growth slow slightly to around 8-8.5 per cent,” a senior industry sales executive said.
Analysts note that this slowdown has come at an inopportune time for companies with large exposure to the sub- Rs 100 per kg category, particularly for segment leader Parle-G, which had expressed fears of layoffs in the future. But the demand slowdown, concentrated more in the rural regions, is just the latest misfortune to have befallen the more affordable segment of biscuits, which has been on the decline since the rollout of the Goods and Services Tax (GST).
The government had brought up the level of taxes on the sub - Rs 100 per kg category on par with the above `100 products, with both taxed at 18 per cent currently. Mayank Shah, senior category head, Parle Products, had said recently that “the consumption of a basic Rs 5 packet has taken a hit due to a high GST rate which has affected the overall run” and that “low demand and high GST rate will eventually lead to the production slowdown and maybe job cuts”.
Analysts agree that brands with lesser exposure to the sub - Rs 100 category have been able to deal with the slowdown better. For instance, market leader Britannia Industries, while dealing with a slowdown in overall volume growth, has increased its market share.
“Though the value biscuits segment declined, Britannia gained volume market share (~35%) focusing on premium products,” noted Shirish Pardeshi and Aasutosh Sai Charla of Centrum Broking.
JM Financial’s Richard Lu and Vicky Punjabi also note that this gives companies like Britannia and ITC more opportunity to acquire larger shares of the market.
“While Parle was the most impacted by GST transition, it has still chosen to not move from its Rs 5 per pack price-point for its flagship Parle-G biscuits. With the slowdown, Parle is likely finding it increasingly difficult to offset margin pressure through volumes,” they said, adding, “such a situation, in fact, represents a good opportunity for premium players like Britannia and also ITC to fortify their presence in the biscuits category”.