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Sunday, July 22, 2001













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Sugar confectionery: Cooling off

Aarati Krishnan

IF THE chocolate segment appears set to face difficult times, the sugar confectionery segment is just cooling off from a free-for-all in which intense competition has taken its toll on quite a few of the players.

The growth rate in sugar confectionery, which is a much larger category than chocolates, at 1.6 lakh tonnes (80,000 tonnes in the organised sector), slowed from 25 per cent in 1998 to 17 per cent in 1999 and the category has actually registered negative growth of 2 per cent since 2000.

Unlike chocolates, marketers of sugar confectionery did manage to pep up penetration levels from 13 per cent in 1999 to 15 per cent in 2000. This could have been the result of the extremely aggressive distribution tactics that players in this segment adopted in 1999 -- using a combination of higher trade margins and extended dealer credit periods.

The influx of a number of MNCs into the business (Perfetti India, General De Confiteria and Warner Lambert) added an edge to the already intense competition for market shares. However, these tactics did claim a few victims. Parrys Confectionery, earlier the market leader in sugar-boiled confectionery, lost market share (falling close behind Nutrine Confectionery, which has a 25 per cent share) after an aggressive focus on primary sales (sales to dealers). It is now reorienting focus on the retail business.

The company took a substantial write-off in 2000, charging off unsold stocks with distributors and rationalising its production systems. The company claims it achieved a 10.5 per cent value growth in 2000-01.

The doubling of excise duty on sugar confectionery from 8 to 16 per cent in Budget 2000 further complicated matters. The low-value nature of the product has made it next to impossible for manufacturers to pass on resultant cost increases to consumers.

``The unorganised sector has grown rapidly after the hike, since organised players have been forced to exit the 25 paise category. Price point sensitivity and coinage issues prevented organised players from passing on the hike to consumers'', says Mr N. C. Venugopal, Managing Director, Parrys Confectionery.

He estimates that the sugar confectionery segment has shrunk by 2-3 per cent in volume terms after the hike. This has forced most players to scale down competitive activity, especially that part of competitive activity focused on pushing distributor sales.

Despite the distribution push, the sugar confectionery segment has seen some successful new launches in the past two years. Parrys Confectionery has met with limited success in the launches of Cricket, Madras Cafi and Indian, while traditional brands such as Coffee Bite, Lacto King continue to be its mainstay.

Cadbury India, which made a foray into the sugar confectionery segment with the launch of Googly in 1997 and followed it up with products such as Gollum and Frutus, has had limited success in the category, with a market share in this segment of 4 per cent by 2001 (around Rs 68 crore in value terms).

Nestle India, which is best recognised in this business for its Polo Mints, has, however, had limited success with its foray into sugar confectionery, under the Allen's banner. Perfetti India's caramelised candy, Alpenliebe, is one of the few exceptions that has made it big over the past two years.

Pricing appears to be the key barrier in this segment. Sugar-boiled confectionery products have traditionally been priced at either 50 paise or Re 1 per unit. The few new product launches priced between these price points have encountered consumer resistance.

This imposes a stiff cost constraint on new players or innovative product launches targeting this segment. That the offerings in this category compete with a whole range of low-value snack foods, biscuits and ice creams does not help matters.

This is probably why Hindustan Lever has chosen to tackle the pricing issue first, in its recent foray into sugar-boiled confectionery. The company has entered the market with a 25 paise offering of Max Magic, probably hoping to expand the market by winning new consumers.

Given the company's substantial free cash flows and its ability to subsidise new businesses for prolonged periods, this could be a difficult act to follow.

Related links:
Parrys record ad spend to help boost brand equity


Section  : Industry
Previous : Confectionery: Chocolates turn a shade bitter
Next     : Not just for indulgence!

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