Choco­lates, Bis­cuits May No More be Sugar-coated with Dis­counts

Cos may not be able to pass on low com­mod­ity price ben­e­fits any longer as sugar gets costlier

The Economic Times - - Brands: Creating Desire - Ratna.Bhushan @times­

New Delhi: The ad­di­tional sweet­ener of a dis­count on sug­ary foods in­clud­ing choco­lates, soft drinks, ice-cream and bis­cuits could dis­ap­pear as FMCG com­pa­nies bat­tle ris­ing sugar prices, made worse by pro­jec­tions of the low­est sugar out­put in five years. FMCG com­pa­nies have been pass­ing on the ben­e­fit of lower com­mod­ity prices, which dipped in the range of 10% to 25%, through dis­counts. But sugar prices, which were hover­ing at .₹ 30 a kg last Oc­to­ber have crossed .₹ 40 a kg last week. With Ma­ha­rash­tra, a key sug­ar­cane grow­ing state hit hard by drought, all-In­dia sug­ar­cane out­put is pre­dicted to fall 10% in 2016, ac­cord­ing to a re­port from credit rat­ing firm ICRA.

“Last year was the year of consumer pro­mo­tions, with price­offs, bundling, free­bies and adding ex­tra weight to packs. But with sugar and even edi­ble oil prices mov­ing up­wards, the first step will be to get pro­mo­tions out of the way, in­stead of up­front price in­creases,” Varun Berry, man­ag­ing di­rec­tor of bis­cuits and dairy firm Bri­tan­nia said.

“Hid­den price in­creases – which means de­creased pro­mo­tions and of­fers – will be the first step to mit­i­gate higher com­modi- ty costs which di­rectly im­pact us,” Parle Prod­ucts mar­ket­ing head Mayank Shah said.

De­spite hedg­ing risks by bulk pro­cure­ment, com­pa­nies said the lag ef­fect of sus­tained in­crease of sugar prices is likely to kick in by later this quar­ter. “We won’t be do­ing im­me­di­ate course cor­rec­tion be­cause it’s peak sea­son for us. But we will re­view

VARUNBERRY MD, Bri­tan­nia ... with sugar and even edi­ble oil prices mov­ing up­wards, the first step will be to get pro­mo­tions out of the way, in­stead of up­front price in­creases

the sit­u­a­tion by June,” said Mother Dairy MD S Na­gara­jan.

A bev­er­age in­dus­try of­fi­cial said if sugar prices con­tin­ued to re­main high, it could re­sult in curb­ing dis­counts in­stead of hik­ing drink prices. San­jeev Ag­gar­wal, chair­man of Moon Bev­er­ages, top bot­tler of bev­er­age gi­ant Coca-Cola said: “Tak­ing up prices fur­ther is not an op­tion be­cause we al­ready did that af­ter the ex­cise hike in March.” Ex­cise duty on sug­ary aer­ated drinks was hiked to 21% from the ex­ist­ing 18% in the Bud­get this year. Ag­gar­wal added: “The Coca-Cola sys­tem takes a long-term view of consumer pric­ing and short-term com­mod­ity fluc­tu­a­tions wouldn’t im­pact consumer prices up­front.”

The re­tail trade is gear­ing up for man­ag­ing dis­counts on bev­er­ages as they ac­count for at least 15% of the shop­per’s bag.

“Bet­ter man­age­ment of that 15% can still lead to over­all sav­ings, as a re­sult pro­tect­ing con­sump­tion,” Deven­dra Chawla, group pres­i­dent brands, food and FMCG for re­tailer Fu­ture Group said.

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