Home / Industry / Retail /  As inflation bites, small packs shed weight and turn dearer

NEW DELHI : Packaged-goods companies, selling small packs of chips, biscuits, noodles and salted snacks priced under 10 apiece, claim it is increasingly difficult to sustain low prices because of soaring input costs.

For companies such as Parle and Britannia, such packs, comprising 40-50% of their sales, help drive volumes in rural markets and low-income households. However, higher edible oil, sugar and wheat prices are forcing them to lower the grammage in the 2 to 10 packs.

In the past six months, the maker of popular Parle-G biscuits has indirectly increased prices by 7-8% in packs priced below 10 by reducing grammage. The small packs help firms target millions of poor and low-income people who cannot afford to buy larger packets.

“Producing smaller packs has become extremely challenging because the yield you get from manufacturing them is not as good," said Krishnarao Buddha, senior category head at Parle Products. “We reduce the weight of the pack till it’s feasible. That’s how we sustain and manage inflation. Above the 10 price pack, we tend to take a direct price increase," he added.

Inflation is not only crimping the spending power of households but also hurting companies as wholesale prices are rising at a much faster pace than retail prices. For instance, the price of sugar rose 7% in the March quarter from a year earlier, while the cost of cashew jumped 35%. Besides, packaging costs have surged: laminates rose 20% in the March quarter from a year earlier, while corrugated boxes increased 21%. Edible oil prices have also risen sharply.

However, Buddha sees no alternative but to keep selling the 5 and 10 packs because that’s what consumers want. Parle biscuit packs priced at 5 contribute close to 40-45% of the company’s sales, while 10 packs contribute 25-30%.

Biscuit maker Surya Food & Agro, which sells biscuits under the Priya Gold brand, said smaller companies operating in the value and mass segment are finding it hard to cope with runaway inflation.

“Earlier, if there was an increase of 10-15%, we would reduce the grammage by that much. Right now, it is not working at all. We may have to remove the 5 pack, and maybe the 5 will become 10. We cannot give any grammage at 5 anymore. The ones available in the market are just not sufficient," said Shekhar Agarwal, director of Surya Food and Agro Ltd.

Seventy percent of Surya Food & Agro’s portfolio is priced between 5 and 10.

Companies said pricing pressure could prompt companies to soon switch to sales of only 10 price packs.

“In the next two to three years, the 10 pack will be the new 5 while the 5 pack will diminish slowly and steadily—because it’s not able to satiate consumer demand," Parle’s Buddha said.

In an earnings call last week, biscuit maker Britannia Industries Ltd said the company would need to take a 10% price increase this year. This will largely be passed through grammage cuts.

Low unit packs, those priced at 5 and 10, contribute 50-55% of the company’s overall sales mix. Britannia sells biscuits under the Good Day, Tiger, and NutriChoice brands.

A low unit price point in a country like India is impossible to vacate, Varun Berry, managing director, said during a post-earnings call with investors, answering questions specific to its low price packs.

“Say 15 years ago—there was a large contribution of 2 and 3 price packs—which have become minuscule today. It has all migrated to 5 and 10. So, I don’t think we are in any position to vacate the 5 segment at this point in time. But as the world evolves and as the consumer evolves and as we get through all of this inflation, time will tell whether it is the time to really press the pedal on 10 and move on from 5," Berry said.

CG Corp Global, the maker of Wai Wai noodles, hinted at a price hike in its 10 noodles portfolio this month.

“If you’re not able to increase the price, then you will go on incurring overheads, which will erode your margin. So it’s a serious sort of a situation. It’s important that other companies also realize the impact of this and work towards correction of prices in the top-selling categories," said Varun Chaudhury, managing director, CG Corp Global.

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