BackCandies shun 50 paise price point
At 50 paise, candy makers make little or no profit per candy due to the increase in the costs of raw materials
Premium
New Delhi/Bangalore: India’s candy makers are finding the increase in the price of sugar, other raw materials and even packaging difficult to swallow and may soon stop making candy priced at 50 paise, moving the confectionery industry to a whole new math.
The Reserve Bank of India (RBI) may emerge an unlikely ally; there are fewer 50 paise coins in circulation and they could well go the way of the 25 paise coins—phased out by the central bank in 2011.
The magnitude of this seemingly marginal decision is evident in the fact that currently 50 paise candies (or sweets, to use a term popular in India) account for about 60% of confectionery sales in India by volume, according to industry executives.
Already, companies such as Perfetti Van Melle, Parle Products Ltd and Mondelez India are launching most of their new products and re-launching many of their older ones at ₹ 1, sometimes even more.
Recently, Mondelez India, the local arm of one of the world’s largest chocolate and confectionery makers, said it would discontinue selling Halls at 50 paise and re-launch it at ₹ 1.
Perfetti Van Melle India Pvt. Ltd, the maker of Happydent chewing gum and Alpenliebe candy, said it will launch new products at a price of ₹ 1 and upwards. “Going forward, it would be an extremely rare event that we launch a 50 paise product," said Ramesh Jayaraman, managing director of the company.
The Italian firm, which has revenue of ₹ 2,000 crore in India, said its 50 paise portfolio has shrunk to under 20% of its sales.
“Companies are moving away from the 50 paise price point and moving to ₹ 1 or higher for individual candies that we track," said Vijay Udasi, executive director at market researcher Nielsen India.
“This trend is reflected in the top four segments in this category, such as traditional hard boiled candies and toffee segment—largely attributed to increasing sugar prices and coinage pressure. The impact of this on the consumer may be negligible, as it is an impulse category, and not one that is price sensitive in relation to the value of the rupee," he said.
Home-grown firms Parle Products and ITC Foods, the maker of Candyman sweets, too, have stopped launching candies at 50 paise. Parle Products makes sweets and toffees such as Kismi bar and Melody. ITC Foods is part of the ₹ 48,176 crore ITC group.
“Four-five years ago, the 25 paise candy died out; the same will happen to the 50 paise point over the next three to four years," said Mayank Shah, group product manager at Parle Products.
“It’s not like 50 paise sweets will disappear overnight—they are too much of a volume generator for companies to do that. But all our new launches are likely to be at ₹ 1 and above, and over time, these will generate most of our sales," he added.
This won’t be the first time companies are trying to move beyond 50 paise. Most past attempts failed as consumers refused to trade up. At 50 paise, companies make little or no profit per candy.
In an attempt to persuade demanding consumers to buy costlier candy, companies are adding chocolate and other fillings, introducing more flavours and even increasing the size of the candy.
Candy sales in India mostly take place in singles (not packs) and “you cannot just take a 100% jump in prices even though it translates to only 50 paise, and expect consumers to pay. You have to show more value, so that’s why we’re coming up with centre-filled candies and new flavours", Parle’s Shah said.
Their efforts this time may be helped by the declining usage and availability of 50 paise coins in the country, according to analysts. Ever since RBI asked banks in 2011 to stop using 25 paise coins, people have also reduced usage of 50 paise coins.
“It’s not a viable business any more" to sell candy at 50 paise, said Abneesh Roy, associate director (institutional equities research) at Mumbai-based Edelweiss Securities Ltd. He added that in the near term, there could be some volume impact for newer launches, but as consumers trade up, they will be more accepting of the revised prices.
Roy said retailers have been demanding firms move away from 50 paise candies because they make no money on them.
Perfetti’s Jayaraman admitted that wholesalers and retailers have been demanding higher-priced candies in order to boost margins that are currently as low as 7 paise per unit.
“We are much happier launching products at a price we can hold for the next decade, build propositions with sustainable profitability rather than just exploiting volumes with very low prices. The consumer is asking for quality and for that prices have to become realistic," he said.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
