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
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.