Parle to hike prices, reduce quantity of biscuits in some packs as GST bites
Bengaluru: For nearly 80 years, Parle G has been a household name in biscuits and the key reason behind its success has been its ability to stick to its position as a mass brand.
That premise will be put to the test three months from now and could result in significant volume losses as Parle Products Pvt. Ltd reluctantly gears up to both reduce the number of biscuits in some Parle G stock-keeping units (SKUs) and hike prices outright on others.
Parle has been loathe to hike prices of its Parle G brand, and other biscuits including Marie that cost less than Rs100 per kg, even though the company has talked about doing so after goods and services tax (GST) was implemented last July.
“There are certain decisions which are irreversible because they are huge and everyone—including consumers—would take a hit,” said Mayank Shah, category head of biscuits at Parle. By May, the firm’s revised pricing strategy for these lower-end brands ought to reflect on retail shelves.
In Parle G, for instance, the company sells its biscuits in various SKUs (pack sizes) that start from Rs2 and go up to Rs100. For SKUs that cost less than Rs10, it will not hike prices but will reduce the number of biscuits in each pack—mostly by one biscuit. In those that cost Rs10 and above, it will increase prices by 4% on average, Shah said.
GST rate on biscuits, at 18%, is much higher than the earlier 12% in value-added tax that companies had to pay. While that has not impacted the more premium segments of the biscuit market, it has hit the bottom end of the pyramid where Parle G operates.
After GST was implemented, the company initially talked about hiking prices of Parle G by March, according to a PTI report last year. That has now been pushed to May, and yet, there is hesitation. The segment is so price-sensitive that knocking just one biscuit off a Rs2 pack, for instance, could impact sales to the tune of 30-50%, said Shah.
“It’s a risky proposition to reduce the quantity or size of an accepted mass brand at the same price. A marginal price increase may be still acceptable by masses compared to a size and quantity reduction as people know there will be a gradual price increase in everything,” said Sreedhar Prasad, partner and head of consumer markets at KPMG.
The bulk of Parle’s business is, indeed, no longer in the glucose biscuits category. Biscuits that cost less than Rs100 a kg, account for only 30% of overall revenue compared with over 60% during Parle G’s heydey.
And the overall biscuit market is doing quite well with Parle’s volume and value sales growing at 12-15% between January and December 2017.
While Shah is banking on the non-mass, premium part of his portfolio—led by Hide & Seek, Milano and Simply Good—to boost profits and growth ahead, co-category head Krishna Rao’s mandate is to drive growth in other non-biscuit categories ranging from confectionary to snacks.
“We make minuscule profits on Parle G but it helps us in many other things, right from sourcing, and it gives you that kind of scale and presence in the market. If Parle G is going to ten shops, along with that, you can sell many other things. It’s not really for profitability that we operate it,” Shah said.