8/4/2014 Sucheta Dalal : Parle-G brought a disciplining factor in the market

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Parle-G brought a disciplining factor in the market

October 24, 2009
Pallabika Ganguly (ML): Over a span of 15 years, you have kept the price of Parle-G
unchanged at Rs4, despite higher input costs. At a time when flour prices have
increased to Rs15 per kg from Rs5 per kg; sugar prices have gone up to Rs30 per kg
from Rs5 per kg; vegetable fat prices have multiplied to Rs70 a kg from Rs15 a kg and
electricity cost has increased to Rs6 per KWh from Rs2 per KWh, how do you manage
the keep prices for Parle-G intact?
Mayank Shah (MS): Parle-G was launched in 1993 with an objective to make biscuits
affordable to Indians and we will follow this objective life-long and maintain our price in
lines with the market such that the biscuits are available to the least common denominator.

In todays scenario when the commodity prices are increasing drastically, all food manufactures, including Parle,
are facing tremendous challenge in maintaining the price and managing the bottom-line. Edible oil prices have
gone down from last year, sugar prices have gone up significantly and wheat flour prices are reasonably low.

Being the worlds largest biscuit manufacturer, we have to look at multiple things to manage our bottom-line and
we are proud to manage it efficiently. To manage your bottom-line, you need to get the best deals for the raw
material in the forward market, even look at volumes that can justify mass production, economies of scale and
maintain your logistics cost.

We manage our production very efficiently as we have 10 manufacturing facilities and more than 60 contract
manufacturing facilities across the country. When we talk about Parle-G, we do not look at bottom-line at all. In last
two years, when we had to take an indirect price hike, we reduced Parle-Gs weight to 82.5 grams from 100 grams.
Mostly you can say that our other products like Monaco, Krackjack, Hide & Seek and Hide & Seek-Milano give us
healthy margins which in turn helps us to keep Parle-Gs bottom-line intact.

ML: How big is the biscuit market and how much market share do you enjoy?
MS: In India the biscuit market is 18 lakh tonnes per annum in terms of size and Rs11,000 crore-Rs11,500 crore in
terms of market value annually. We have more than 40% market share.

ML: Competitive price scenario has forced other manufactures to keep the price tag at the same level. In that
case, in order to gain or retain market share, what are your strategies?
MS: Prior to 1996, there was no competition for our brand. Britannia came up with its brand Tiger in 1997 and ITC
Foods came up with a brand Sunfeast in 2003we could have increased the price before our competitors came
into the market but we did not do it because our objective behind launching Parle-G was different.
Parle-G brought a disciplining factor in the market which did not allow the competition to increase their prices. They
tried to increase prices but were not successful because of our pricing policy for Parle- G and in the end, the
competitors also have to keep their prices low.

ML: You have changed your packaging from wax-coated paper to bi-axially oriented polypropylene papers.
Does this change help you to maintain the margin?
MS: Yes, we have experimented with the packaging to keep the cost low. Currently our packaging cost is about 10
paise.

ML: Do export prices protect your margins, as in the US your famous brand, Parle-G is sold for about $2?
MS: We do not decide prices for our product in the US. We sell it through distributors who price it accordingly.
Exports contribute less than 5% of our total turnover.

ML: How many contract manufacturing factories do you have overseas?
MS: We have three contract facilities in neighbouring countries, one in Bangladesh and two in South Africa.
Two years ago, there was a lot of demand from these areas so we decided to start manufacturing in these
countries. But our major export takes place from India.

ML: How much biscuits do you sell annually?
MS: We sell above 50,000 tons of biscuit every month, out of which 40,000 tons is Parle-G. So you can say we sell
around 650,000 tons of biscuits every year.

ML: What about turnover? What kind of growth do you expect over the next few years?
MS: Last financial year, we reported a turnover of Rs35 billion and we expect it to grow at a compounded annual
growth rate (CAGR) of 15% over the next five years.

ML: How much do you spend on advertising?
MS: Our advertising and sales promotion budget is about Rs500 million to Rs600 million per annum.

ML: You roped in Bollywood star Hrithik Roshan as your brand ambassador. Does it affect your advertising
spend and are you planning other star endorsements?
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Ms: Four years back our advertising budget was around Rs200 million-Rs250 million but after we roped in
superstar Hrithik Roshan as our brand ambassador our budget more than doubled. Later, we signed Amir Khan
and Darsheel Safary for our brand Parle-G because the character they played in Taare Zameen Par was similar to
the message we want to convey through our brand, i.e. G for Genius. Other than these three stars, we do not plan to
sign anyone, at least at the moment.

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rbala99 5 years ago
I recall my meetings of yesteryears with some veterans in this company. They used to
look at an MNC competitor's books and tell us that there should be a sieve at that
company or so much inefficiency. Parle was sure that they even by selling below the
book cost price of the MNC, they would make handsome money. This is truly a co to be
admired.

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