Biscuit case 13

Biscuits Industry is the largest among all the food industries

and has a turnover of around Rs.5000 crores. India is known to be the
second largest manufacturer of biscuits, the first being USA. It is
classified under two sectors: organized and unorganized. Bread and
biscuits are the major part of the bakery industry and covers around 80
percent of the total bakery products in India. Biscuits stand at a higher
value and production level than bread. This belongs to the unorganized
sector of the bakery Industry and covers over 70% of the total
production. with an annual output of 1.95 million tons, India is the
third largest producer of biscuit, after the US and China. Per capita
consumption of Biscuits in the country is only 1.8 kg, as compared to
2.5 kg to 5.5 kg in South eastern countries and European countries &
USA respectively. The annual growth in the Biscuit Market is witnessed
as below:

Annual Growth %

The growth has been stagnating during the last 4 years but it is expected to pickup
momentum during the year 2007-08, mainly on account of exemption from
Central Excise Duty on biscuits with MRP up to Rs.100/per kg, as per Union Budget
for 2007-08. Indian Biscuit Manufacturers Association (IBMA), instrumental in
obtaining the excise duty exemption, estimates annual growth of around 17% to
18% in the current year (2007-08). Growth in biscuit marketing has been achieved,
mainly due to improvement in rural market penetration.

According to the IBMA (Indian Biscuits Manufacturers Association)

the penetration of Biscuit into

Rural Market :- 50% to 65%

Urban Market :- 75% to 85%

Biscuit Industry is broadly categorized into various different segments:

Glucose forms the highest % amongst all with products such as Britannias Tiger
& Parles Parle-G, while the glucose biscuits are popular in Rural India, Urban
market prefer Cream biscuits.

As per IBMA (Indian Biscuit Manufacturing Association) sales of the

Biscuit Industry has been divided into four parts according to the consumption
pattern, that is Northern Zone, Eastern Zone, Western Zone & Southern Zone.
MAJOR PLAYERS (Company Wise)

Biscuit Industry is considered to be the biggest industry in the Food

Industry. It is being always dominated by the Big Players such as Britannia, Parle,
ITC, Nutrine, HLL Kissan, Kwality and even international brands like Kellogs, Nestle,
Sara Lee and United Biscuits. Some of the other brands which try to dominate the
local market are Veeramani, Bonn, Bhagwati, Raja, Champion,Sobisco,Madhabi,

Within the sector, Britannia has become aggressive with its Tiger brand with
variants to compete with Parle's Parle-G in the glucose biscuits category. Britannia
and Parle dominate in branded biscuit segment with Britannia having business of
Rs 4500-crore p.a.. The Surya Food and Agro Private Ltd with its Priya Gold Brand
has come out of the local fold. ITC Foods Ltd has expanded network and is
promoting its Sunfeast biscuits across 1000 schools in the country. Foreign players
like United Biscuits and McVities have also entered the fray. However, these
players have concentrated themselves in the super-premium and premium
segments. The companies have added new variants into the existing brands as
done by Britannia in Good Day brand. Parle G and Hide & Seek with addition of
flavors like butter, badam, pista and cashew, HLL in Kisan Grudy biscuit brand. The
focus on urban markets has also contributed significantly to the growth of the
biscuit industry. Market share of the major players are like :-
MAJOR PLAYERS (BRAND WISE)

Glucose biscuits account for about 35% of the overall domestic biscuit
market at Rs 2,000 crore. Parle is the clear market leader with more than two-
thirds market share with brand Parle-G, followed by Britannia with about 20%
share through its brand Tiger. A CAGR of 35% over the last three years aided by
the increasing buoyancy in the cookies segment has seen Good Day emerge on
top with approximately 20% share of Britannia's biscuit revenue pegged at around
Rs 1,500 crore. Britannia has identified the key micronutrients critical during the
growing phase of a child as vitamins (B1, B6, B12 and D), iron, iodine and calcium.
Using these four essential ingredients Britannia has created a 'Smart Nutrients
Mix' and has fortified its Milk Bikis range of products with this mix for providing
nutrition at an affordable price. Back in 2003, nobody thought Sunfeast would
have consumers eating out of its hands. The company says that achieving 7% in
less than three years is something that they could have only dreamt about.
Importantly, industry barometer AC Nielsen has indicated that both Parle
and Britannia are losing market shares. According to the AC Nielsen retail sales
audit in March 2006, both Britannia and Parle have lost volumes. Britannia's
shares have dropped from 35.8 per cent in 2004-05 to 30.5 per cent in May 2006
(volumes). Parle's shares have also dropped from 42.2 to 38.4 per cent in the
same period. Indian biscuit market is estimated to be around 5000-crore. The
market is dominated by Parle and Britannia. Parle is the volume leader with
brands like parle- G, Krackjack and Monaco while Britannia is the value leader with
brands like 50: 50, milk bikis, Tiger, Goodday etc. The biscuit market has now
moved from the core Glucose base to more value added categories. The key
markets are UP, Maharashtra, and Tamilnadu.

UNORGANIZED SECTOR

According to the Federation of Biscuit Manufactures of India (FBMI),

the biscuit industry in India in the organized sector produces around 60% of the
total production, the balance 40% is contributed by the unorganized bakeries. The
production by organized players is estimated to be 1.3 million tonnes, for the year
2005, which means if we include the unorganized sector the total tonnage should
be at least 2,500,000. The industry consists of 3 large-scale manufacturers, around
50 medium scale brands and 2500 small-scale units in the country. The
unorganized sector is estimated to have approximately 30,000 small & tiny
bakeries across the country.
The unorganized sector was producing around 10 lakh tonnes
manufacture a total of approximately 25 lakh tomes which translated in about 850
million packets. Over 70 percent of the famous biscuit market has been captured
by Britannia and parles through ITC Sunfeast.

GOVERNMENT POLICIES

Taxation: On behalf of the industry, IBMA has been pursuing the

issue with the Chief Ministers/Finance Ministers of all States and also with the
Chairman of the Empowered Committee on VAT, seeking reduction in the rate of
VAT on biscuit to 4%. IBMA estimates annual growth in the range of 15% to 20%
during the next five years, in the event of reduction in the rate of VAT on Biscuits
to 4%. The biscuit industry, particularly those in the small and medium sector, is
burdened with the steep increase in prices of raw materials like wheat flour and
vegetable oil. Biscuit is a price sensitive high volume low margin industry. Gujarat
and Kerala have recently imposed 10% surcharge on VAT and many states were
charging local levies like entry tax, purchase tax and local development tax. West
Bengal and Tamil Nadu have resorted to differentiating biscuits made by
registered and unregistered units under Factories Act and also between branded
and unbranded biscuits. Such measures are unjustified.
Biscuit industry witnessed a growth of 17% in 2007-08 after stagnating
around 13-14% growth rate in the last 4 years. It picked up momentum in the first
half of 2007-08 on account of exemption from central excise duty on biscuits with
MRP up to Rs 100 per kg. In the first six months of 2007-08 biscuit production was
944,000 tonne. In 2006-07 production was 1.416 million tonne. About 15% of the
production is exported, according to IBMA data.

IMPORT/EXPORT

An export of Biscuit is estimated to around 10% of the annual production

during the year 2006-07. Imports of biscuits into India have not shown any
significant growth during the last two years and have not affected
production/sales by the Indian Biscuit industry.

PRESENT & FUTURE

According to the IBMA (Indian Biscuit Manufacturing Association) the
production figures are continuously increasing with an average rate of 14%. The
production for last 4 years are :-
While the growth rate has been stagnating during last 4 years, it is expected to
pick up momentum during 2007-08, mainly on account of exemption from Central
Excise Duty on biscuits with MRP up to Rs.100/per kg, as per Union Budget for
2007-08. Indian Biscuit Manufacturers Association (IBMA), instrumental in
obtaining the excise duty exemption, estimates annual growth of around 17% to
18% in the current year (2007-08). Growth in biscuit marketing has been achieved,
mainly due to improvement in rural market penetration. In spite of the raw
material prices going up, in order to grow volumes, many organized players
maintained the prices. This has forced many unorganized players to close down
their business as they do not hold financial muscle and brand power to sustain in
the market. On the other hand new entrants like ITC are spending huge amounts
on advertisements, which has helped the entire market to grow rapidly. These
new players along with Britannia Industries have introduced a lot of new variants
and products in different pack sizes. As the unorganized players are not able to
introduce new variants or continue advertising spends, they are losing their
business to organized players like Britannia Industries and ITC. Due to the growing
economy, rising income levels, growing nuclear families ready to eat segment will
grow as faster rate. As of now biscuit is the only established category in ready to
eat segment apart from potato chips and wafers. Biscuits are considered to be
more nutritional than wafers and they do enjoy better acceptance among
children.