SHRINKING PIE
NEW DELHI: Packaged-goods companies, selling small packs of chips, biscuits, noodles and salted snacks priced under ₹10 apiece, claim it is increasingly difficult to sustain low prices because of soaring input costs.
For companies such as Parle and Britannia, such packs, comprising 40-50% of their sales, help drive volumes in rural markets and low-income households. However, higher edible oil, sugar and wheat prices are forcing them to lower the grammage in the ₹2 to ₹10 packs.
In the past six months, the maker of popular Parle-g biscuits has indirectly increased prices by 7-8% in packs priced below ₹10 by reducing grammage. The small packs help firms target millions of poor and low-income people who cannot afford to buy larger packets.
“Producing smaller packs has become extremely challenging because the yield you get from manufacturing them is not as good,” said Krishnarao Buddha, senior category head at Parle Products. “We reduce the weight of the pack till it’s feasible. That’s how we sustain and manage inflation. Above the ₹10 price pack, we tend to take a direct price increase,” he added.
Inflation is not only crimping the spending power of households but also hurting companies as wholesale prices are rising at a much faster pace than retail prices. For instance, the price of sugar rose 7% in the March quarter from a year earlier, while the cost of cashews jumped 35%. Besides, packaging costs have surged: laminates rose 20% in the March quarter from a year earlier, while corrugated boxes increased 21%. Edible oil prices have also risen sharply. However, Buddha sees no alternative but to keep selling the ₹5 and ₹10 packs because that’s what consumers want. Parle biscuit packs priced at ₹5 contribute close to 40-45% of the company’s sales, while ₹10 packs contribute 25-30%.
Biscuit maker Surya Food & Agro, which sells biscuits under the Priya Gold brand, said smaller companies operating in the value and mass segment are finding it hard to cope with runaway inflation. “Earlier, if there was an increase of 10-15%, we would reduce the grammage by that much. Right now, it is not working at all. We may have to remove the ₹5 pack, and maybe the ₹5 will become ₹10. We can’t give any grammage at ₹5 anymore. The ones available in the market are not sufficient,” said Shekhar Agarwal, director of Surya Food and Agro. About 70% of Surya Food & Agro’s portfolio is priced between ₹5-₹10.
Companies said pricing pressure could prompt companies to soon switch sales of only ₹10 price packs. “In the next two to three years, the ₹10 pack will be the new ₹5 while the ₹5 pack will diminish slowly and steadily—because it’s not able to satiate consumer demand,” Parle’s Buddha said.
Last week, biscuit maker Britannia said the firm would need to take a 10% price hike this year. This will largely be passed through grammage cuts.