Dec 16, 2008

Business - India;Low-end chocolate makers upbeat on demand

Dilip Kumar Jha

Despite two major confectionery manufacturers Nestle and Cadbury announcing price hike of their low-end chocolates, others are finding the segment still lucrative without any upward revision in prices.

Players with national presence such as Parle Agro are slowly increasing its market penetration through introduction of low-priced candy. The company has recently introduced Mintrox (hard mints) and Buttercup (hard-boiled candy) in Re 0.50 segment. It has also launched ButterCup Softease and Frewt Éclairs in Re 1 segment, which, it believes, will facilitate large volumes and distribution penetration.

According to Nadia Chauhan, director of Parle Agro, Buttercup Softease is a one of a kind product with no other company manufacturing it in India. Frewt Éclairs is also one of a kind in the éclair category, which is dominated by chocolate éclairs.

Analysts, however, believe that decision by Nestle and Cadbury to vacate Rs 2 segment will pave way for consumers to opt for Re 0.50 and Re 1, which is a growing segment in India.

More than 80 per cent of the confectionery sold in India is at the 50-paisa price point. Considering that it is a low value item, there is little to almost no fluctuation in the category as far as demand is concerned.

The local players who are very high in number have not been able to absorb the rising costs and have been reducing in number due to inefficiency and inability to create economy through mass scale production or distribution.

Nestle and Cadbury had recently announced 50 per cent rise in low-end chocolates prices of Rs 2 to Rs 3 per candy thereby, vacating this segment completely.

“In this category, it is only a volume game. To sustain, you have to be able to generate high volume. To justify your presence in this category, you have to ensure high volumes,” Chauhan told Business Standard.

Confectionery is valued at over Rs 2,000 crore, with an outlet base of over 40 lakh outlets. This is significant as smaller players in this segment have failed to absorb rising raw material prices including cocoa, sugar and milk resulting in a consolidation in unorganised sector players. Adding to that is the poor credit facility by banks. The current confectionery market is continuing to grow at a rapid pace, especially with the introduction of various new categories.

“With over 60 per cent of India being youth-dominated and with almost one Australia being born into India every year, it is without doubt one of the most exciting markets for any confectionery player. We intend to capitalise on this huge opportunity through innovative products and categories,” Chauhan added.

Local players including Camco, Bunty’s, Chukoo, Atlas, Kim Kim, and Garys have also witnessed a spurt in demand in Re 0.50 and Re 1 segments.

Meanwhile, the major raw material for confectionery manufacturing including cocoa and sugar have declined dramatically from their respective peaks in July.

The benchmark cocoa futures prices as quoted in New York is currently traded at $2,170 a tonne, well below the above 20-year high of $3,385 in early July, but up from mid-November’s low of $1,903. Similarly, sugar is currently traded in India at Rs 1,900 per quintal from its July peak at Rs 2,250-2,300 per tonne. Milk, another raw material, is holding high at Rs 30 per litre as against Rs 27 per litre, thus, fearing a major impact on low-end chocolate manufacturers.

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