Leading biscuit companies are seeing smaller and local players eat into their sales since the new goods and tax regime came into force, and they claim that these companies, mostly unbranded ones, offer higher retail margins and lower price points since they are not GST compliant. With the Rs 35,000-crore biscuit market the largest category within FMCG, a single percentage drop is as big as sales loss of Rs 350 crore. “Many players are not tax compliant and have low operating cost which helps give high margins to retailers who push brands mostly in rural areas,” said Mayank Shah, category head, Parle Products. He said they are seeking a tax reduction from 18% for biscuits below Rs 100/kg to 5% bracket.
Britannia, Parle and ITC control nearly 69% of the biscuit market in the country. In fact, the top 15 players including Mondelez, Anmol and Saj Industries put together account for 92% of the segment. While Nielsen data, sourced from officials, suggests 1% share drop for Parle and ITC each over the past two years, Parle said the market researcher doesn’t track regional brands, which are restricted to just one district. This is in contrast on what most companies expected during the new tax regime in 2017.
Analysts too anticipated an increase in market share of organised players over their unorganised rivals as the price differential of products was likely to reduce while making tax evasion incrementally difficult with a significant compliance cost burden. “Biscuits are a staple and the most basic packaged food products in the country. Rate should be reduced to 12% so that it can be effectively passed through price cuts, which in turn, will boost consumption and make it level playing field,” said Varun Berry, managing director at Britannia Industries, the country’s largest biscuit maker.
During last calendar year, the biscuit category grew 12%, slower compared to 14% in 2017. Companies estimate 3,500-4,000 smaller and loose biscuit firms operate in just one region or district, all nibbling away at their sales growth for years, local brands not just in biscuits but in most segments have eaten into share from leading consumer product companies, especially in soaps, detergents, hair oil, tea and biscuits, with more than 500 unorganised players operating in these categories. In segments such as tea, smaller players and loose tea operators control 40% of the market, while in detergents and soaps, hundreds of local companies enter the market at a time when crude oil prices, a key ingredient for detergents, bottom out since that’s the only cost incurred in making the products.