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Sticky price points in the confectionery segment will not make it possible for manufacturers to increase prices immediately. In fact, most of them are getting ready to absorb the hike in excise duty by one per cent in the 2011 budget.
ITC, one of the biggest confectionery majors with brands such as Minto and Candyman might tinker with the weight of its confectionary brands rather than changing price points. “We might make changes in the weight a little but it would depend entirely on what our competitors do. Unlike biscuits, it is difficult to change weightage for confectionery products. But price points will remain the same as these are convenience-driven prices at 50 paise and Rs 1. It is easy to absorb a one per cent increase in excise duties as we can make improvements in our efficiencies to take care of such minor increases in excise duties,” said Mr. Chittaranjan Dar, Chief Executive, ITC Foods.
Grammage
Grammage for a 50 paise candy can vary between 2.5 to 5 gms depending on the brand. Others such as Perfetti Van Melle with brands like Alpenliebe and Center Fresh, is not planning any price hike either. Mr Ramesh Chari, CFO, Perfetti Van Melle, said, “The excise hike of one per cent would definitely affect our bottomline but we have to bear the cost as all prices are MRP-driven and there is no scope to pass it on to consumers as confectionery has sticky price points.''
The Mumbai-based Parle Agro, which had also forayed into the confectionery segment a couple of years ago with brands like Mintrox Monts and Buttercup candies, will also face similar consequences in the category.
According to Ms Nadia Chauhan, CMO, Parle Agro, “The increase in the excise duty of sugar confectionery will definitely have an impact on the industry. It could lead to price hikes or reduction in the size of the confectionery. Any change in the MRP would impact market share hugely. We could see an increase in the number of one rupee brands and heading in this direction over time, the 50 paise category could get eliminated just as the 25 paise did in the past. This would be a hindrance to the entry of a lot of local brands and others in the 50 paise category.”
Consumers today have trained their minds to spend either 50p or one rupee for confectionery products as this is the dominant price point. “Paying Rs 1.50 or Rs 2 is paying double; which consumers may not be ready for. So as of now we will continue to retain our current price points,” she adds.
No impact
Chocolate major Cadbury, however, with its limited confectionery portfolio may not get impacted immediately. According to a Cadbury spokesperson, “It is the Halls brand of confectionery which will be hit by the hike in excise duty. Chocolates is our mainstream business and the addition in excise will be limited to the Halls brand primarily.''
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