Mayank Shah, Senior Category Head, Parle Products, says “there was a 7-8% rise in wheat prices. As a result, there is a bit of pressure on the bottom line. However, the other key ingredient which is edible oil is down compared to last year which is a saving grace. Net-net, the impact is not as much as one would expect. As edible oil price has come down from an all-time high of about Rs 175 to Rs 95-98, there is a much needed respite and almost all companies have passed back that savings to consumers through either consumer offers or reduction in MRP.”
Wheat prices are at a six-month high. Do you think that this is a bit of a worry for the company and how are you looking to alleviate concerns on the high wheat price front?Wheat prices are definitely a little bit of a concern especially if we look at the run-up prices in the last one, one-and-a-half months. There is an increase of 7% to 8% in wheat prices. As a result, there is a bit of pressure on the bottom line. However, the other key ingredient which is edible oil is down compared to last year which is a saving grace. Net-net, the impact is not as much as one would expect because wheat happens to be a key ingredient but it should not move further up from here. We are pretty hopeful given that the crop was good although the government was not able to mop up the quantum of wheat they wanted through FCI, but we expect that given the measures that government has taken of late in terms of hoarding of wheat and stuff like that, wheat would be freely available and the prices would be relatively stable. So that is our outlook on wheat. As far as margins are concerned, currently that is not as much a concern but yes, it would be a concern if wheat prices continue to rise.What is the company’s strategy if wheat prices continue to hold out or escalate from the current levels? Do you pass it on to the consumers and have you already done that?The inflation scenario last year was a major challenge and inflation was unprecedented as far as certain inputs for food items were concerned, especially edible oil and given that most companies had taken price corrections last year. However, the major ingredient which had gone up last year was edible oil and it has come down from an all-time high of about Rs 175 to Rs 95-98 today. As a result, there is a much needed respite and almost all companies have passed back that savings to consumers through either consumer offers or reduction in MRP. A bit of rationalisation might happen if we continue seeing a rise in wheat prices.How is your distribution across the country? I want to gauge your business partners across the country and even your target audience. How are they on the demand front? If you indeed go ahead and hike the prices even mildly, would there be acceptance or a pushback there?It should not be because what happened last year was we increased the prices. Yes, volumes did get affected and one of the major reasons why most companies are passing back the reduction in input cost is to gain back volumes. While value growth is coming, the biggest challenge ahead of most companies as we all know in the last quarter has been volume growth. The growth that is coming is primarily driven by increase in prices. Volume growth is either flat or at most just 1% or 2%, not more than that and just to get the volume growth back companies are passing back, so there has been some sort of resistance in terms of increasing prices. But just to mitigate that, companies are passing back the reduction in input cost to consumers to drive volumes.
Now, if we reduce that freebie or promotion that has been given or pass back that is currently given to consumers, there might be a little bit of impact on volumes but then we need to understand that it is always a relative and biscuits do not operate in isolation, they operate as a part of a larger snacking assortment.
If the impact of input cost increases across multiple segments of food or processed food or snacks, then the impact would be marginal. But wheat is a primary or key input in biscuits and not so much in namkeens and other things. If only wheat price keeps going up and biscuits are the only category taking a price hike or reducing the pass back, there might be a little bit of an impact on volumes.
What is the consumer pattern and behaviour in these times of escalated food inflation? Is it the mass or the premium biscuits which are finding favour? Smaller packs account for around 50% of your overall sales. Are consumers shifting to those?
Both in fact. It is a good thing right now that we are getting back the volume growth because of passing on the benefit of lower input cost through extra weight and reduction in MRP. Urban India was doing very well. It has been doing well since last about seven-eight quarters and if we look at rural India, rural India has started gaining traction in last one quarter. So, there is a revival of demand in rural India and it is further aided by the additional pass back that companies are offering because of the reduction in input cost.
Currently both are growing and since both geographies – urban as well as rural are growing, both value as well as premium products are doing well. Till about a quarter ago, premium products were doing well and there was a pressure on value products, but now there is a revival of rural demand and we are seeing traction across both premium as well as value offerings.