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Top 5 Challenges Biscuit Manufacturers Will Face In 2018

Biscuits market in India

Consumer Goods and Retail | Mar, 2018

Biscuits, in India, saw a moderate increase in retail sales of over 8% in 2017, which is at par with 7.8% CAGR from 2012 – 2016. The growing maturity of this product category and shift in consumer preferences could be the possible factors for slow-to-moderate growth of the product categories. Premiumization and healthier product options are the megatrends observed in the market among working population and young adults in the country which could be the key target audience for biscuit suppliers. Pocket-friendly packs, availability across channels, aggressive promotion strategies and maintaining efficient supply-chain are few of the prominent focus areas for players operating in the market. However, biscuits manufacturers are poised to witness some major challenges which will force them to change the way they work in 2018.

Challenge 1: Volatility in Raw Material Prices

The wholesale prices of the raw materials such as Wheat flour, sugar, butter, cocoa, etc., which are key ingredients in the manufacturing of biscuits, are highly volatile. For instance: Sugar and milk prices in India has risen at a CAGR of over 4.5% & 5.5%, respectively, during 2013-2017. Similarly, global cocoa prices witnessed a rise at a CAGR of over 4% during 2013-2017. This in turn has led to increase in average selling price of biscuits.

India being a highly price sensitive country, manufacturers face difficulties to increase prices due to which value chain stakeholders are expected to witness shrinking profit margins.

A biscuit manufacturer can’t control raw material price fluctuations but can adopt tools to help formulating an effective business strategy to remain steady during the fluctuations in raw material prices. With a decade of experience, TechSci Research has worked with various marquee names in the biscuit industry, across value chain, and have assisted them with market intelligence solutions ranging from product development, distribution channel optimizations and endpoint sale strategies. To curb the said challenge, TechSci Research has conducted market forecasting analysis for manufactures in predicting the demand of the product. A business needs a plan of action that allows a company to buy when prices are low and rely on their inventory when prices are high. The only way to succeed is to have a robust forecasting of demand and supply. This is one area where TechSci Research excels. TechSci Research has helped its clients to forecast the market demand and eventually, plan their raw material requirements. With this information the company can purchase raw materials at most favorable prices.

Challenge 2: Low acceptance of Mid & Premium segment biscuits in Rural Areas of the country which constitutes around 65% of the population

Majority of the demand for mid & premium segment biscuits comes from the Urban population in India. Acceptance of such products is very low in rural part of the country on account of high prices. Rural consumers prefer glucose biscuits because of low price and more quantity. The demand for these economy segment biscuits in rural India is anticipated to get further affected in the coming years due to problems like deficit in monsoon, etc. resulting in lower income due to which marginal consumer whose income growth does not keep pace with inflation are not able to spend on non-necessity items.

In a highly price sensitive environment of the country, customer seek value-for-money. Understanding a customer w.r.t. to their spending preferences, expectations, aspirations, etc. is the need-of-the-hour for an FMCG company. With expertise and wide knowledge base of analyzing the demand-side of the market, TechSci Research have conducted number of studies in rural areas of the country for number of majors in FMCG ecosystem. To tackle the said challenge, TechSci Research has provided customized research solutions such as Channel Partner Development study and Price Sensitivity Analysis to its clients. While executing these studies, it was observed that inadequate distribution reach of the product is the major area of concern for companies. It is recommended that biscuit manufacturers identify and develop distribution partners to increase penetration in untapped areas of the market with the help of market research studies. Also, in a country like India, where price plays a major role while making a purchase decision, manufacturers needs to carry out pricing strategy studies by assessing the demographics which has helped leading biscuit manufacturers deepen their roots in the market.

Challenge 3: Highly Fragmented Market

The biscuit majors operating in the India are expected to face high competition from regional players like Unibic, which has deep penetrated roots in southern part of India. For instance, in cookies segment, Unibic has witnessed highest growth in southern states when compared to other marquee names in the country. Moreover, key players in the market has diversified brand portfolio further fragmenting the biscuit market. Due to this, the companies are not able to focus on the sales of a single brand. Also, this results in higher expenditure on marketing and other promotional activities, eventually, shrinking the profits. In addition to regional penetration of brands, Unorganized segment of biscuit market, which accounted for over 40% share in 2017, is another area of concern for the players operating in India. Although organized players have an impressive reach in rural part of India, low priced unorganized biscuits are hindering the sales of branded biscuits and this unorganized sector takes advantage of the price sensitivity of the Indian consumer.

Amongst this grey area of the market it is very important to identify a local partner to familiarize yourself with the ground reality. The unorganized sector of the market can be seen as an untapped opportunity and a market participant should use market intelligence to leverage this opportunity. Understanding a customer’s perception can be the key to establish the footprints and penetrate deeper in this area of the market. As an expert from market’s demand-side prospective and widespread reach in every corner of the country, TechSci Research has carried out consumer perception studies for biscuit manufacturers wherein TechSci has showcased the major influencers of purchase, the optimal price a customer is willing to spend, impact of marketing and advertising campaigns on a consumer and factors that can influence a customer to switch from an unorganized to a branded biscuit even at district level in the country. With consumer data and insights of this quantum provided by TechSci Research, the manufacturers have been able to appropriately position their products w.r.t. pricing, pack size, local taste, etc. and cash in on the opportunities available in the market.

Challenge 4: Lack of Exclusive Retail Distribution Channel

Biscuits, being a low-priced product, offers limited margins across value chain. Unlike small bakeries across country like Frontier which have their exclusive retail outlets, key players lack exclusive retail channel resulting in sharing their margins throughout the value chain.

An effective distribution strategy is what it takes to reach to your customer efficiently. For a product like biscuit, managing a distribution network is a challenge. On one hand an exclusive retail outlet could be a much expensive option for a rural area and on the other, selling a product in traditional store is what the crowd is following blindly. With more than ever developing modern retail format, increasing consumer awareness across country, etc. making the product visible in the market should be the prime focus area. With an extensive experience and an array of service offering in FMCG ecosystem, TechSci Research has worked with stakeholders throughout the FMCG market value chain and have conducted the studies like market assessment, opportunity assessment, product testing, product positioning, competitive intelligence, promotion and advertisement effectiveness, pricing strategy among others for its clients. Visual Merchandising, Aisle space management analysis, Retail roll-outs and promotional activities through exclusive kiosks in public spaces are few of the other consulting engagements TechSci Research have been assisting biscuit manufacturers with.

Challenge 5: Negative “Short-Term” Impact of GST

Rolling out of GST touted as one of the biggest hurdle for the biscuit industry in India due to unjustified imposition of GST at a rate of 18% resulting in lower production and revenue of the companies. It is expected to have short-term implications on the market, wherein, either companies will witness lower profits, or the consumers would take hit in terms of product price hike.

In order to sustain a short-term implication, a viable long-term solution should be adopted. With GST roll-out, biscuit market is expected to experience some turbulence which is inevitable. However, it would do no harm to brace the business with a long-term plan which will provide a cushion of absorb the impact. A long-term strategy formulation requires an extensive demand & supply forecasting. With a decade long experience and consistent monitoring of FMCG industry for domestic and international markets, TechSci Research has conducted robust forecasting studies for FMCG and other vertical majors which has helped them in planning and formulating a business strategy. It is important for biscuit manufacturers to understands the historic and current grounds realities of the market and get holistic forecasting studies done which will help them to stay ahead of the market and dodge these road blocks in an efficient manner.

Author: Mr. Ruchit Mahendru, Research Manager, TechSci Research

Mr. Ruchit Mahendru is a management and strategy consulting professional with over 8 years of experience. Mr. Mahendru has been instrumental in developing and implementing business strategies for many FMCG companies. He has an extensive experience in advising clients to identify and tap unearthed opportunities for its clients to lead rather than following competition. 

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