CASE ANALYSIS 1 PARLE-G

Submitted By: Biswajit Bhuyan (u313010) Jagadisha Behura (u313016) Jyoti Ranjan Rout (u313018) Kishore Ku. Mohanty (u313025) Paritosh Mishra (u313033) Soobhraj Purohit (u313050)

INDIAN BISCUIT INDUSTRY

Biscuits are a very significant part of the food industry in most countries of the world. Biscuit is most suited for local production. This factor alone has made India a big biscuit centre. This industry has flourished in India enormously over the years and is still growing phenomenally. Biscuit manufacturing is divided into two sectors: organized and unorganized. The organized sector consists of 60% of the national market whereas the unorganized sector caters to the rural markets which dont have easy access to bank credit, technology and information system. In the organized sector, there are five main categories of biscuits: glucose, marie, sweet, cream and milk. Glucose is a high volume-low margin biscuit category representing 42% of the entire biscuit market. The unorganized sector consists of small bakery units, cottage and household type manufacturing, producing mainly the goods distributed in the surrounding areas without good quality packaging. Apart from the big three companies (Britannia, Parle and ITC), there are around 150 medium to small biscuit factories in India. Some of the other domestic players are Kwality, Priya, Anmol and also MNCs like Excelsia (nestle), Heinz and United biscuits. Biscuits in the premium categories which were growing at a lower rate in comparison to the low priced categories are now growing at a higher rate of about 20 percent per year. According to a study by Mckinsey Global Institute, the percentage of spending on discretionary items would grow dramatically, whereas the spending on the basic necessities would grow more slowly. There are five categories of Indian consumers on the basis of individual annual incomes, in a descending order: globals, strivers, seekers, aspirers and deprived. The seekers and the aspirers together from the middle class and the biggest consumption group for most goods and services. PARLE & PARLE-G Parle had been manufacturing candies for 10 years when in entered into the biscuit industry in 1939. The company deployed state of the art machinery and its biscuit baking oven was the largest in Asia. It had 10 manufacturing sites of its own and around 60 contract manufacturing facilities which helped the company to acquire a 40 percent share of the biscuit market in India and produced approximately 650000 tonnes of biscuits per annum of which, Parle-G, the flagship brand comprised 500000 tonnes. The company recorded a sales revenue of INR35 billion of which, Parle-Gs contribution alone was 68 percent. Even within the Parle-G brand, the single largest contribution came from INR4.00 SKU which was contributing to 34 percent of the companys annual sales revenue. The biscuit portfolio included Parle-G in the glucose category, but also marie in the tea time category and hide n seek, monnaco, krackjack, cheeslings, jaffs, sixer and fun centre in the premium category. There was a room to grow parles presence in the premum category which registered a gwoth of approximately 20 percent per annum. Parle had three contract manufacturing facilities outside India: one in Bangladesh and Two in South Africa.

THE 7-P ANALYSIS OF PARLE-G

Product

Parle-G had come to define the entire glucose biscuit category in india. Parle-G as a biscuit brand had been strongly associated with offering a value for money (VFM). Parle-G was slod to consumers in 46 stock keeping units (SKUs) at 12 price points. For example a packet of 15 biscuits weighing 82.5 grams sold for a maximum retail price (MRP) of INR4.00. Tiger (Britannia) & Sunfeast (ITC ltd.) who entered the market in 1996 and 2003 respectively were the leading competitors of Parle-G. They followed the same price points in their product varieties so as to compete with Parle-G. Competition: rising costs had affected two new brands more sharply because they were new entrants and some brands even exited the market because they were not able to sustain it, like HUL. Pricing The input prices of two major raw materials, wheat and sugar, were rising at an increasing rate over a period of time. So Parle had to contain its cost of production or increase the price to maintain the margin. Parle had generally refrained from increasing its price, even when it had no competition. And also when it was forced to increase its price, it saw a decrease in revenues. So the company decided to tinker with the grammages and undertake cost control measures to safeguard margins. Now the main aim of the company was to be cost effective in every aspect of the production and marketing. The biscuit industry kind of reflected the stackelberg model of oligopoly wherein Parle-G was the market leader and Britannia and ITC were the followers. Since Parle had the majority share, the other companies followed suit in terms of pricing strategies. So Parle-G had to be double sure of its moves, so that it could contain the competition. Place Parle-G was sold in 2.5 million retail outlets in India and it had a reach in every village with a population of 500 people. It also had 8000 wholesalers who had their own sales force. To control costs, Parle had also tried to bring manufacturing centres close to the wholesalers by franchising production. Promotion Parle had been doing extensive advertising and promotions and was spending between INR600 million to INR700 million every year since the year 2004. It had also begun to rely on celebrity endorsements by collaborating with Aamir khan. It had also associated itself with Shaktiman, the most popular childrens programme at that time so as to increase their reach among the kids. ITC was using Sachin Tendulkar and Britannia Tiger was using Salman Khan. Positioning Prior to 1980, Parle glucose biscuit had been called Parle Gluco. To increase the brand connect, the name was changed to Parle-G, so that it could also differentiate the product from

others. Parle-G was also associated with being healthy, but gradually as markets changed, the companys positioning also went from being good to better. At one point in 1990, they emphasized on the essential goodness and slowly they moved towards substituting milk, providing energy and power, providing nourishment and now they promote Parle-G as a product which makes kids smart and turns them into geniuses. Parle-G also changed its focus from being a mass product to being a mothers and childrens product. Parle-G also stressed on offering 450 calories in a single pack which effectively promoted them amongst government circles and it was positioned as fortified nourishment which could also be a substitute for meal in primary schools. Even Britannia and ITC also projected themselves as being healthy. Packaging Small packages were the norm in India for attracting people. It helped attract nonusers, one time users and new users. It complemented the Indian habit of top-up shopping. So Parle-G also introduced products starting from INR 1 to INR 40. Previously, Parle-G used was coated paper for packaging, but it replaced those by Biaxially oriented polypropylene (BOPP) paper to reduce packaging costs. People The most widely used consumer classification system in India was known as the socioeconomic classification. The basis of classification was not the individual consumer, but the consumer household. India had 207.1 million households in 2005-06 out of which Parle-G penetrated 96.1 million households. The company segmented its consumers for Parle-G into two types: Retail consumers and institutional consumers. The INR 4 SKU of Parle-G was the most sold variant and the SEC class of E2, R3 and R4, which comprised of the deprived section of the society, were the largest consumers of Parle-G. But being the low cost product, it was substantially consumed by the other sections of the society, which added to its value proposition. A POSSIBLE FUTURE SCENARIO
Increase in income of individuals (upward movement from deprived to Globals)

Increase in purchasing power

Increase in demand for premium biscuits

Decline in Parle-G sales

74% market share in 2009. Highest brand connect. longeivity. Value for money.
STRENGTH WEAKNESS

Parle's over dependence on Parle-G moresoever on INR 4 SKU Inability to increase price. Minimum penetration in Premium sector.

OPPORTUNITY

THREAT

Scope of growth in the premium sector. Increasing exports.

Increasing prices of raw materials. Increasing purchasing power of consumers. Entry of new competitors.

ISSUES CONCERNING THE COMPANY Parle-G was perceived to be a low cost and value for money brand. This image didnt even allow them to increase their prices when the input prices were increasing. Like in 2004, when the company tried to increase its INR 4 SKU to INR 4.50, it saw a 40 percent decrease in sales within six months. This negative impact forced them to reinstate the original price for which they had to focus on reducing the grammage. But the question was how long can they sustain by doing so? In 2009, pricing became an even larger issue that had spawned two other dilemmas: 1. The value for money proposition wasnt allowing them to increase the prices. So they wanted to overcome the consumers VFM perception so as to contain the increasing prices of raw materials. 2. Parle as a company was over dependent on Parle-G sales and more so on a single SKU i.e., the INR 4.00 SKU. It was a vulnerable proposition because people were migrating to high end biscuits and if the trend continued, they would be in a risk to lose a lot of revenue as well as market share in case of Parle-G. SUGGESTIONS According to us, the company can try the following: 1. It can develop a Parle-G variant for the premium category of biscuits so that the brand connects still remains and it can garner sales in the premium category. And if this succeeds, then it can cover up some of the losses in the low priced category and also

create a new value proposition for the brand Parle-G. The company can in this way also project itself as not just being a low cost product. 2. The company can contemplate venturing into foreign countries with similar market structure like India or rather a viable market for the low cost Parle-G, like Sri Lanka and Bangladesh. Though the company already has one unit in Bangladesh, it can scale up its business there to earn more revenues. 3. The company can redefine its promotional strategy so as to emphasize on their longevity and value proposition. This can also increase their connectivity with the people. They can use some catchy lines like NOURISHING YOU, SINCE 1939.