PARLE G

UNDER THE GUIDANCE OF Dr. Dindayal Swain Associate Professor IMI - Bhubaneswar

SUBMITTED BY Mr. Japkirat Singh Oberai PGDM 2012-14 IMI- Bhubaneswar

Date: 20 -11-2012

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DECLARATION

I hereby declare that the report titled PARLE-G submitted to IMI- Bhubaneswar is a work done by me under the esteemed guidance of Dr. Dindayal Swain, faculty member, IMIBhubaneswar.

Japkirat Singh Oberai, PGDM 2012-14, Roll No 12

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Index S. No NAME Page No.

1. PARLE 2. PARLE-G 3. INDIAN BISCUIT INDUSTRY 4. PORTERS FIVE MODEL 5. SWOT ANALYSIS 6. PROBLEM STATEMENT 7. RECOMMENDATIONS 8. REFERENCES

04 04 05 07 08 08 09 09

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PARLE
In 2009, Parle Products Pvt. Limited (Parle), a leading Indian biscuit manufacturer, had the distinction of producing the largest selling glucose biscuit brand by volume in the world, the Parle-G. Parle-G biscuits sold for approximately US$1 per kilogram and as very few processed and ready-to-eat foods were available at this price point, Parle-G was strongly associated with offering value for money (VFM). A looming problem in this brand category for Parle was that the input prices of two major raw materials for the Parle-G biscuits (which together accounted for 55 per cent of their input costs) had risen enough in the past 18 months to decrease margins from 15 per cent to less than 10 per cent. Pressure to restore margins led Parle to consider a price increase yet a previous attempt had caused dramatic reduction in sales. Parle subsequently addressed rising input costs by reducing the weight of the package, franchising production, reducing supply chain costs and reducing packaging costs. Parle could not ignore the deeply entrenched perception of VFM when devising both short- and long-term marketing plans to retain Parle-G's success in the marketplace. These plans needed to address segmentation, positioning and changing Indian demographics when considering a potential price increase for Parle-G biscuits. Parle has started its operations as a manufacturer of candies in suburban Mumbai in 1929. In 1939 it diversified into making biscuits. It deployed state-of-the-art technology that provided automatic printing and packaging, and its biscuit baking oven was the largest in Asia. Parle had 10 manufacturing sites of its own, in addition to 60 manufacturing facilities allover India. The biscuit segment in Parle was developing and its the largest market than confectionery. The company had 40 percent share of the total biscuit market in India and 15 percent share of the total confectionery. Many of Parles products were perceived as offering good value for money and were market leaders in their respective categories. It recorded a CAGR of 15 percent. It had R&D focused in product development. Its role was to use the customer insights, received from sales force, in developing new brand extensions and also product categories. Parle produced 650,000 tons of biscuits per annum of which Parle-G was the flagship brand comprised of 500000 tons. The company recorded sales revenue of INR 35 billion in 2008-09 of which Parle-G contribution was 68 percent. In the Parle-G the single largest contribution came from INR 4.00 SKU. Five percent of revenues came from exports. The company has adopted the follow the customer strategy. Parle had 3 contract manufacturing facilities outside India- one in Bangladesh and two in South Africa.

PARLE-G
Parle-G was introduced in 1939, which was strongly associated with offering value for money, a marketplace reception that remained unflattering for more than 60 years. Due to its strong presence the perception on whose glucose biscuits was perceived as value for money biscuits. Parle-G was sold to consumers in 46 stock keeping units (SKU) at 12 price points.
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The average price of Parle-G was approximately US$1.00 per kilogram. Parle have maintained the same price point for Parle-G since 1990. VFM was the consumer perception that led Parle-G to become the largest selling biscuit brand by volume since 2002. In January 2004, it made a first attempt to raise its prices as the ingredients of the biscuits are hiked. It hiked the price of 16 biscuits pack from INR 4 to 4.50. The 100g packet was the largest selling SKU contribute to 50 percent of brand revenues every year. The main idea behind this is how the consumers are receiving the price hike. The sales of 100g packet dropped to 60 percent. The negative consumer reaction was spontaneous and immediate all over the nation.

Four years later Parle-G decided to hamper the grammage rather the price. It reduced 100gm to 82.5 gm. There is no negative reaction on tinkering weight of the product. It also took costcontrol measures to safeguard margins. The company had also consolidated buying and entered into forward contract with vendors of raw materials to reduce supply chain costs. A price hike seemed like a necessity to restore the margin levels. India had 15 million retail outlets. Parle-G was sold in 2.5 million outlets. It was available in every village with a population of 500 people. The company had 8000 wholesalers who had their own sales force. The logistics were handled by depot.

INDIAN BISCUIT INDUSTRY

India was the third largest biscuit producers of the world. 15 percent of Indian biscuits were exported, domestic demand for biscuits fueled industry growth. Biscuit industry was divided into two sectors: organized and unorganized. In the organized sector, the five main categories of biscuits were glucose, marie, sweet, cream and milk. Glucose was a high volume, lowmargin biscuit category that represented 42 percent of the biscuit market. Sweet, cream and milk were indulgent categories that carried premium categories. Marie was in-between category. Parle-G was the part of the glucose category. Remaining groups were started from price point of INR 5.00. The organized sector produced 1.7 million tons of biscuits per annum. The biscuit market is 110 billion in 2008. The sector was growing at a rate of 15 percent. The McKinsey classified Indians into five categories on the basis of individual incomes. The study conclude that the percentage of spending on discretionary items would grow dramatically

Consumer Category

Annual Income INR

Number of Aggregate income households at the at the national national level level Million Trillion 2005/15/25 1.2/3.3/9.5 2.0/6.3/21.7

Aggregate consumption at the National level Trillions 1.2/4.1/14.1

Globals

1001+

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Strivers Seekers Aspirers Deprived Total

501-1000 201-500 94-200 <90 -

2.4/5.5/33.1 10.9/55.1/94.9 91.3/106.1/93.1 101.3/74.0/49.9 207.1/244.0/280.5

1.6/3.8/20.9 3.1/15.2/30.6 11.4/14.6/13.7 5.4/3.8/2.6 23.5/43.7/89.5

1.0/2.7/16.5 2.0/11.8/24.6 8.5/12.2/11.9 4.1/3.3/2.4 16.8/34.1/69.5

The below table is the Indian Biscuit category and brand penetration of Parle-G in the house holds during October 2008 to December 2009. If we observe the trend Parle-G has the high penetration in the households of SEC R4, R3, R2 and D classes. In these classes the penetration is high and the volume of sales is also high.

Number of Indian Households that purchased Biscuits in ) Oct 08 to Dec 09 (millions) Biscuits (All Categories) SEC Class A1 and A2 B1 and B2 C D E1 and E2 R1 R2 R3 R4 178.8 7 10.7 12.4 13.2 14.7 6 17.2 50 47.6 % 3.9 6 6.9 7.4 8.2 3.3 9.6 28 26.6 Glucose Category 114.9 3.2 5.6 7.3 8.4 9.9 3.6 11.4 32.7 32.8 % 2.8 4.9 6.3 7.3 8.6 3.1 9.9 28.4 28.5 96.8 2.4 4.6 6 7 8.5 3 9.3 27.7 28.3 Parle-G % 2.4 4.7 6.2 7.2 8.7 3.1 9.6 28.6 29.2

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PORTERS FIVE MODEL :

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SWOT ANALYSIS : STRENGTHS Parle Brand, Diversified product range, Extensive distribution network. Low and mid price range Catering to mass, Better understanding of consumer psyche OPPORTUNITIES Estimated annual growth of 20% Low per capita consumption, Changing consumer preference, Increasing demand for sugar free, Diet biscuit. WEAKNESS Dependence on retailers & grocery Stores for displaying diversified Parle Products on shelf, induce impulsive buy Dependence on Parle G (flagship brand) THREATS Hike in cost of production due to hike In Raw material cost, Increasing distribution cost, Local bakery products, Entry of various new entrant, ITC etc.

PROBLEM STATEMENT
Pricing was a larger issue in Parle-G, its the time for Parle-G to take decision on price as the margins were dropped and the raw material costs are hiked. The main dilemma here is whether there will be negative reaction from the consumers on regarding the price hike. All the competitors are just following the Parle-G as the segment is a value for money and people are so cautious about the money they spent. As people are graduating from glucose category to the premium category, the sales of Parle-G are expected to reduce. How to overcome the cannibalization is another issue, there by the Parle-G will be the undisputed brand of Parle. Parle-G belongs to Glucose category. Consumers spend 49% of their budget to food basket. Consumers tend to see for offers and discounts. The price elasticity is high here. In Parle-G case the price elasticity is too high in both urban and rural area.

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RECOMMENDATIONS
Entering into the modern trade. In the present scenario increasing the price is must as the brand has a high equity and it is valued by the consumers. The margins of the Parle-G were 10 % and are intending to reach the previous margin of 15%. A fifth of urban Indian shoppers now shop regularly at Modern Trade Uptick in deal-seeking behavior, over half of shoppers now seeking promotions A third of shoppers choosing bulk packs as a strategy to beat price rise The company can enjoy the same profit even though there is reduction of sales up to 33.33%. This implies increasing the product price does not cause much damage. Selling the biscuits at places like railways, bus stations etc. Bundling offers like Buy 3 at INR 13.0 Increasing the availability of the Parle-G in rural areas as the sales from them are high and even the consumption pattern of the rural areas increased six folds faster than that of the urban and growth rate of the rural India is increasing and there is a increased spending of government on the rural areas, which implies that the spending ability of the rural areas also increase.

REFERENCES
1. 2. 3. 4. http://blog.nielsen.com/nielsenwire/consumer/impulse-and-lifestyle-productsdefine-the-fmcg-future-in-india/ http://blog.nielsen.com/nielsenwire/consumer/india%E2%80%99s-rural-fmcgmarket-to-grow-to-100-billion-by-2025/ http://en.wikipedia.org/wiki/Parle-G http://www.ba.metu.edu.tr/~cagli/ba2701/guests/Pricing.ppt

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