Sunday, October 08, 2006

Sunfeast foray into Biscuits

Major players in biscuits who dominated the industry long back were Parle and Britannia. With that there were smaller brands in various regions. Instead of all this ITC took a bold step to hit on these biscuit mammoths making 82% of industry (in 2004)

Now the important question at hand is the reason why ITC entered into this product category. Let me enumerate some reason:

  1. Food segment is Rs. 550,000 crores (112 b$)
  2. 6% is FMCG (Branded and packaged) – Rs. 33000 crores
  3. In developing markets, the above percentage is as high as 95%. So looking into future, India’s will have more organized and branded food product categories. It will lead to dual effect: Increase in base of biscuit segment and Increase in % of branded food categories
  4. ITC has a great scope to be a branded player
  5. Branded Biscuits industry come out to be around Rs. 4000 crores
  6. Increasing at the rate of 12 to 14% yoy
  7. Synergies with ITC core competencies (value addition to wheat with Aashirwad Atta brand)
  8. Biscuits as a segment positively effects the bottom line

Threats for ITC: Behemoths like HLL tried their hand in this segment but unsuccessful (Max brand exit in 2005)

Reason for Entry into Biscuits

  1. Innovation: Research revealed that the category had gaps which ITC could settle into. Findings revealed that consumers wished to taste new and innovative products. That was precisely what the competition had not done in a big way. Glucose was Glucose and same is the case with Marie. The company decided that this could be its biggest point of attack. In 2003, ITC launched Sunfeast with six ranges. But it was a calculated risk. ITC stuck to category favourites like Glucose, Marie and Bourbon cream. Along with that, it also launched innovations such as orange-flavoured Marie, Marie light and butterscotch-flavoured cream biscuits. In 2004, Sunfeast followed this up with the launch of Sunfeast Milky Magic. More recently, it also has launched the Sunfeast Snacky and Sunfeast Golden Bakes. The biscuits industry had not witnessed any major product innovation in years. Consumers were just waiting for something new, something fresh, when Sunfeast happened
  2. Distribution: Distribution is the key for FMCG products. In biscuit category, distribution and visibility is extremely important as it's partly an impulse purchase product. Priya Gold, which entered the western region in 2000, is struggling to find its feet even five years later. However, in this regard, Sunfeast did not stumble. The main credit goes tobacco business – its understanding and deep grasp in distribution. But it was not limited to just panwaris, but looked at the grocery stores and other retail formats. The company says the brand is now available in nearly 1.8 million outlets. Britannia claims it has a superior distribution clout with its presence in nearly 3.3 million outlets. Parle, the seasoned player itself, says it is available in 1.5 million outlets. Sunfeast's next step was to step up its branding and promotion
  3. Promotion: In August 2003, a month after its launch, the company undertook a major sampling exercise to promote the product. For two years then, the brand did all the usual rounds - riding behind buses, blocking television spots, corner space in newspapers P
  4. Pricing: The biscuits industry now has two clear models. Parle products plays the low price game at all varieties of biscuits from glucose to cream. Parle plays a high volume, low margin game. But Britannia and Sunfeast look at a two-pronged strategy. High margins in cream variants and volumes from the Marie and Glucose segments. For instance, cream biscuits from both Britannia and Sunfeast cost Rs 10 for 100 grams. Parle, however, only charges Rs 5 for its cream variants. Except for Hide & Seek, all of Parle's products lie in the price range between Rs 4 and Rs 6 for 100 gram packs. Biscuit consumer is willing to pay more only when he sees a clearly differentiated product. Hence companies have little choice in terms of pricing. No wonder all the Glucose and Marie variants straddle price points of Rs 4-6 (for 100 grams)

Results
1. Volumes: In March 2006

  • Britannia's shares have dropped from 35.8 per cent in 2004-05 to 30.5 per cent in May 2006
  • Parle's shares have also dropped from 42.2 to 38.4 per cent in the same period
  • Priya Gold has seen a minor dip from 6.4 per cent to 5 per cent
  • ITC's Sunfeast has been a big gainer with its share increasing from 2.7 to 6.7 per cent

2. Value

  • Britannia leads the market with 37 per cent market share
  • Parle's 31.3 per cent
  • ITC's 6.3 per cent

Definately a long journey for ITC. Lets wait and watch ITC reaching the peak in next set of years.

5 Comments:

Blogger Nirav said...

Hi,
Some corrections in numbers.
1) Parle operates in two different segments in the cream segment. One is at Rs.5 for the economy segment and at Rs. 8 - 10 with its Parle Funcentre brand.
2) Britannia Mariegold sells for Rs. 15 for 200 grams. So don't know how you got Rs. 4 - 6 for 100 grams.

This info is sourced by self and some people who work in the industry. I myself do research on this industry.

Oh by the way, amazing collection of facts and figures on the FMCG industry. Keep up the good work. Am blogrolling you.

October 18, 2006 1:45 AM  
Blogger NeverSayNever said...

Amazing work boss
but as far as this article is concerned, i personally feel its a no-brainer to justify by applying these kinda frameworks that why a co. entered a particular segment..wud be great if u cud tell abt which businesses should ITC or other fmcgs should enter...anyways this is one of the best blogs on marketing i have seen..keep it up!

October 19, 2006 7:01 PM  
Blogger Nitin Kochhar said...

FMCG companies should enter into business where they can leverage their core competencies. In case of ITC, they have core competency of Branding, Distribution, Packaging etc which made them suitable for biscuits. Also their backword integration - in terms of e choupals - wheat procurement.

With that it is important to understand the readyness of the product category in a particular region. Amul launched Readymade Pizzas in 2002/ 2003 .. That was not a success, as the consumers were not ready for it.

There can be numerous other reasons.

October 20, 2006 10:00 AM  
Anonymous Manav Mathur said...

There's some difference between the market worings involves in cigarette sales and biscuit sales.
1) brand switching - If a consumer asks for a Gold Flake today, Im reasonably sure he would ask for a Gold Flake in the next 6 months.
2) Credit/Cash - Cigarettes are essentially cash driven products (distributor to retailer) whereas "food" products incluidng biscuits are sometimes available to retailers on credit. This impacts on the distributors' cash invested in market and his perceieved ROI.

The distribution channel as a core competency really needs to be looked further into as it is not as cimple as it sounds.

January 12, 2007 10:05 AM  
Blogger Chaitanya said...

Hi, could someone get me contact number of sunfeast institutional distributor in Hyderabad.
I can be reached at (0)9346030773

October 08, 2010 7:40 PM  

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