INDIAN BISCUIT INDUSTRY

Size of the Industry

The production capacity of wafer biscuits is 60 MT and the cost is Rs.56,78,400 with a motive power of 25 K.W. Maharashtra, West Bengal, Andhra Pradesh, Karnataka, and Uttar Pradesh. Biscuit industry contribute Rs 8,000 crore to the FMCG industry today provides vast opportunity Indian subcontinent is known to be the second largest manufacturer of biscuits, the first being USA.

Geographical distribution

Output per annum

Percentage in World Market

OVER VIEW OF THE INDIAN BUSCUIT INDUSTRY

Biscuit industry contributes Rs 8,000 crore to the FMCG industry and provides a vast opportunity for growth. It is classified under two sectors: organized (70% market share) and unorganized (30% market share). There are around 150 medium to small biscuit factory in India apart from Big 3 players i.e., Britannia, Parle, ITC

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About 90% of Indians buy and eat biscuits. India is ranked 3rd after US and China amongst the global biscuits producers. The export of biscuits is approximately 17% of the annual production. This industry employs almost 3.5 lakh people directly and 30 lakh people indirectly. Biscuit consumption per capita in India has grown to 2.1kg per capita in comparison to 10kg per capita consumption in USA, UK and Europe

The penetration of biscuits in India among the urban and rural market is 85% and 55% respectively. The annual turnover for the organized sector of the biscuit manufacturers at 200102 is Rs. 4,350 crores. The annual Growth showed a decline of 3.5% in 2000-01, mainly due to 100% hike in Central Excise Duty (from 9% to 16%) by the government. Production in the year 2001-02 increased very marginally by 2.75% where in 2002-03 the growth is around 3%. Government took initiative for the development as The Union Budget for 2003-04 granted 50% reduction in the rate of Excise Duty on Biscuit i.e. from 16% to 8%. The Federation's estimate indicates a growth of approximately 8% to 9% per year

The organized biscuit manufacturing industries annual production Year Annual Production(Lakh MT) 200304 11.00 2004- 200505 06 200607 16.14 2007- 200808 09

12.54 14.29

17.14 19.5

The Federation of Biscuit Manufacturers of India (FBMI) has confirmed a bright future of India Biscuits Industry. According to FBMI, a steady growth of 15 percent per annum in the next 10 years will be achieved by the biscuit industry of India. Besides, the export of biscuits will also surpass the target and hit the global market successfully.

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PLAYERS: Top leading Companies

Parle Britannia Sunfeast Priya Gold Cremica Dukes Anmol Horlicks Biskfarm

CATEGERISATION OF PLAYERS IN THE INDUSTRY

Britannia and Parle the two food majors of India in the field of biscuits. Britannia dominated the premium segment of biscuits with Good day , Marie gold , Creams whereas Parle dominated the mass low premium biscuits with its Parle G , Krackjack and Monaco. But with the entry of players likeITC and PriyaGold, these major biscuit producers need to compete with differentiated products.

Foreign players like United Biscuits and McVities have also entered the fray. However, these players have concentrated themselves in the super-premium and premium segments.

HISTORY: Biscuits are a very significant part of the food industry in most countries of the world. A biscuit is a small baked product; the exact meaning varies markedly in different parts of the world. The origin of the word "biscuit" is from Latin via Middle French and means "cooked twice" (similar
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to the German Zwieback). Some of the original biscuits were British naval hard tack. That was passed down to American culture, and hard tack (biscuits) was made through the 19th century.

India Biscuits Industry came into major existence and started gaining a sound status in the bakery industry in the later part of 20th century when the urbanized society called for ready made food products at a tenable cost. Biscuits were assumed as sick-man's diet in earlier days. But today it has become one of the most loved fast food products for every age group. Biscuits are always easy to carry, tasty to eat, cholesterol free and reasonable at cost. States that have the larger intake of biscuits are Maharashtra, West Bengal, Andhra Pradesh, Karnataka, and Uttar Pradesh. Maharashtra and West Bengal are the most industrially developed states; hold the maximum amount of consumption of biscuits. Even, the rural sector consumes around 55 % of the biscuits in the bakery products. The total production of bakery products have risen from 5.19 lakh tonnes in 1975 to18.95 lakh tones in 1990. Biscuits contributes to over 33 percent of the total production of bakery and above 79 percent of the biscuits are manufactured by the small scale sector of bakery industry comprising both factory and non-factory units.

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CURRENT SCENARIO:
Biscuit industry in India in the organized sector produces around 60% of the total production, the balance 40% being contributed by the unorganized bakeries. The industry consists of two large scale manufacturers, around 50 medium scale brands and small scale units ranging up to 2500 units in the country, as at 2000-01. The unorganized sector is estimated to have approximately 30,000 small & tiny bakeries across the country.

In terms of volume biscuit production by the organized segment in 2001-02 is estimated at 1.30 million tonnes. The major Brands of biscuits are - Brittania, Parle Bakeman, Priya Gold, Elite, Cremica, Dukes, Anupam, Horlicks, Craze, Nezone, besides various regional/State brands.

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Consumption pattern across different regions: As regards the consumption pattern is concerned. surveys and estimates by industry from time to time indicate the average consumption scenario in the four Zones have been more or less close to each other as below:

Northern States: Southern States: Western States: Eastern States:

28% 24% 25% 23%

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Though India is considered as the third largest producer of Biscuits after USA and China, the per capita consumption of biscuits in our country is only 2.1 Kg., compared to more than 10 kg in the USA, UK and West European countries and above 4.25 kg in South East Asian countries like Singapore, Hong Kong, Thailand, and Indonesia etc. China has a per capita consumption of 1.90 kg, while in the case of Japan it is estimated at 7.5 kg. In view of the meagre per capita consumption even as penetration of biscuits manufactured by the organised sector, into rural areas in India, has been very good during the last 10 years, as also in the metro and other cities, small towns etc. However, in spite of this, the industry has not been able to utilize about half of their installed capacities. Import of biscuits, especially in the high price segment has started from 1998-99, but however, the quantum of imports has not so far increased alarmingly and has remained at around 3.75% of the consumption of biscuits in the country in the year 2001-02. However, recent imports from china industries cheaper verities of biscuit, needs to be examined with cautions, especially in the context of the price as the low margin based domestic industry, which is operating at 60 % of the total installed capital. Export of biscuits from India has been to the extent of 5.5% of the total production. Export is expected to grow only in the year 2003-04 and beyond.

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INDIAN INDUSTRY vs. GLOBAL INDUSTRY

During the five and a half decades of post-independent India, the biscuit industry in the country has achieved a position of pre-eminence as the third largest producer of biscuits in the world after the USA and China. The biscuit industry is been experiencing steady growth of 14-15% annually. In 2008, the growth exceeded 16% mark on account of exemption from Central Excise Duty on biscuits. Indian Biscuit Manufacturers Association (IBMA), instrumental in obtaining the excise duty exemption, estimates annual growth of around 20% in the year 2008-09. Growth in biscuit marketing has been achieved also due to improvement in rural market penetration. The annual Growth showed a decline of 3.5% in 2000-01, mainly due to 100% hike in Central Excise Duty (from 9% to 16%). Production in the year 2001-02 increased very marginally by 2.75% where in 2002-03 the growth is around 3%.

2003-04 - 15% 2004-05 - 14% 2005-06 - 14% 2006-07 - 13% 2007-08 - 15% 2008-09 - 17% (April June)

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The annual Growth showed a decline of 3.5% in 2000-01, mainly due to 100% hike in Central Excise Duty (from 9% to 16 %). Production in the year 2001-02 increased very marginally by 2.75% where in 2002-03 the growth is around 3%.Thereafter the annual growth increased to over 8 %. The Federation's estimate for the year 2007-2008 indicates a growth of approximately 8% to 9%. According to IBMA, the biscuit industry in India witnessed annual growth as 15% in 2003-04, 14% in 2004-05 and 2005-06, 13% in 2006-07, 15% in 2007-08 and 17% in 2008-09. While the growth rate has been stagnating during last 4 years, it has picked up momentum during the 2007-08 and the first quarter of 2008-09 mainly on account of exemption from Central Excise Duty on biscuits with MRP up to INR 100 per kg, as per Union Budget for 2007-08. On the other hand, import of biscuits, especially in the high price segment has started from 1998-99, but however, the quantum of imports has not so far increased alarmingly and has remained at around 3.75% of the consumption of biscuits in the country. Exports of biscuits from India have been to the extent of 7.5% of the total production. Exports are expected to grow further in the year 2007-08 and beyond. Biscuit is a hygienically packaged nutritious snack food available at very competitive prices, volumes, and different tastes. According to the National Council of Applied Economic Research (NCAER) Study, biscuit is predominantly consumed by people from the lower levels of society, particularly children in both rural and urban areas with an average monthly income of Rs. 750.00.

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The annual production of biscuit in the organized sector continues to be predominantly in the small and medium sale sector before and after de-reservation. The annual production was around 7.4 Lakh tones in 1997-98. In the next ten years, biscuit production witnessed an annual growth of 17%, up to 2008-09. Though dereservation resulted in a few MNCs, i.e. Sara Lee, Kellogs SmithKline Beecham, Heinz etc entering the biscuit industry in India, most of them, with the exception of SmithKline Beecham (Horlicks Biscuits), have ceased production in the country. According to the production figures of members available up to the calendar year 2009 to the FBMI, the total production is increasing from year to year. The production of biscuit for the last 6 years is as under:

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Challenges
Biscuit industry is facing constraints like non-availability of adequate infrastructural facilities, lack of adequate quality control & testing infrastructure, inefficient supply chain, and seasonality of raw material, high inventory carrying cost, high taxation, high packaging cost, affordability and cultural preference. Unprocessed items are prone to spoilage by biochemical processes, microbial attack and infestation. Good processing techniques, packaging, transportation and storage can play an important role in reducing spoilage and extending shelf life. The challenge is to retain the nutritional value and flavor. The industry needs to overcome various challenges if it has to grow to the estimated levels.

Major Challenges for the Indian Biscuit Industry are:

The biscuit industry is a challenging market for the new players who plan to enter the market. The old & new players regularly should follow certain parameters to ensure a smooth sail & sustained growth. Some of them are outlined below: Keep check on competition. Strong Focus on quality. Survey the market closely before launch. Focus on R&D. Thorough knowledge of the product [2]. Consumer education on nutritional facts of biscuits. Need for distribution network and supply chain. Backward-forward integration from farm to consumers. Development of marketing channels. Development of linkages between industry, government and institutions. Taxation in line with other nations [1].

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Future Outlook
A favorable economic outlook, higher disposable incomes and the consumers` willingness to try new brands - all have attracted a number of players to the biscuit industry, both at the national as well as local level. This will generate intense activity in the marketplace. Today, there are three to four key players in the organized sector, while each city/town has several local bakeries. Manufacturers in the organized sector offer a wide variety of products, ranging from premiumend to mass class. With the entry of big players, the domestic biscuit manufacturing sector is to see a healthy competition that would ensure good quality products at affordable prices to the consumer. Exports of biscuits would also pick up. It has already increased with Indian biscuits turning favorite choice in several Middle East markets. Thus, the biscuit manufacturing segment is poised for a stronger growth in the coming times. The annual production figure for organized sector in biscuit industry is 10.50 lakh metric tonnes and the growth rate is 9%, a fall of 2% from previous year. The per capita consumption as well as pattern of consumption in the four regions i.e. North, South, West and East will also increase considerably, if there is reduction in the rate of Value Added Tax (VAT). [3]

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STRATEGIES AND COMPETETION IN THE INDUSTRY

PORTERS FIVE FORCES MODEL
Michael Porter provided a framework that models an industry as being influenced By five forces.

PORTERS FIVE FORCES ANALYSIS:

RIVALRY WITHIN THE INDUSTRY:

Major players dominate the Indian market. High competition among the players in the industry to capture maximum market share. Unorganized sector cannot compete with major players in the case of Advertising.

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ENTRY BARRIERS: Low entry barriers because of, Capital intensive manufacturing, advertising and distribution. Heavy competition from major players.

BARGAINING POWER OF SUPPLIERS: In the case of major players bargaining power of suppliers is very low as they dictate the Prices. The ingredients are basic commodities such as wheat, sugar etc.

POWER OF BUYERS: High because of, Availability of many biscuits from low, moderate prices. Availability of biscuits from non-organized sector. Loyalty of the buyers to biscuits that have brand identity makes them more powerful in the case of new entries.

THREAT OF SUBSTITUTES: It is high because, Substitute threat is more in the case of biscuits. Growing packaged industry and bread industry. Traditional Indian homemade snacks.

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EXTERNAL ENVIRONMENT ANALYSIS

PESTEL Analysis:
PESTEL factors play an important role in the value creation opportunities of a strategy. However they are usually beyond the control of the corporation and must normally be considered as either threats or opportunities. Macro-economic factors can differ per continent, country or even region, so normally a PESTEL analysis should be performed per country.

Political:

Taxes: The Excise Duty on all Value Added food products like Nutritional and health food, high value ready to cook products to be brought down to a maximum of 16% to 8%.

Production and Distribution licenses have been liberalized.

Economical

Lack of technology up gradation in manufacturing, packaging act. has also been a factor affecting, along with inadequate financial credit and support particularly for the medium and small scale biscuit units.

Increase in per capita income in India. Indias GDP growing at an average 8%.

Social

Increase in per capita consumption by all segments of the market. India is 3rd largest producer of biscuit in the world.

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Age: As a consequence of the high birth rates prevalent, a large proportion of the Indian population is relatively young- in the age group of 16-25 years. This group is also high in consumption and therefore, this trend is expected to provide a further boost to the growth of consumption in India.

Lifestyle :Increase in the population of working women and increasing prevalence of nuclear double income families, especially in urban areas, are other trends shaping lifestyles.

Positive Perception among the people regarding products (biscuits).

Technological

Innovation: lack of innovation and technology in production but has been Improving from past five years Improved Research and development activities in the industry.

Environmental:

Agriculture based industry. Population in the country is also boosting the sales of the industry.

Legal:

Taxation, both Central Excise Duty as also State Sales Tax, other miscellaneous levies i.e. turnover tax, local area tax, mandi taxes, purchase tax, octroi etc. ,has been a major deterrent in the growth of the biscuit industry. The CII Study Report has identified Biscuit as one of the products that should treated as "Merit Good for the purpose of liberal tax policy both by the Centre and States.

Zero duty import of capital goods and raw material for100 percent export oriented units.

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The excise duty on packaging materials and packaging machineries used for the processed food industry should come down to 8%. Packaging material for match sticks is exempted from excise duty.

The Sales Tax or VAT rates for all machinery used should be lowered to the concessional rate of 4%.

Critical Success Factor:

CRITICAL SUCCESS FACTORS OF THE BISCUIT INDUSTRY IN INDIA are, Indias lower and middle class segment will continue to hold the key to success of the biscuit industry in India. Distribution (in rural markets) and advertising (in urban markets Innovation) and launching of new brands are being adopted by the companies to grab the market. The companies have added new variants into their existing brands including stylish packaging. The focus on urban markets has also contributed significantly to the growth of the biscuit industry. Standard grocers are the leading distribution channel, with one third of the Indian biscuit market, by value. Traditional grocers are the only other channel to take a doubledigit share. Alliances The biscuit manufactures able to maintain good relations with distributors, whole sale suppliers and regional institutions (through CSR and other community oriented activities) will have greater market share due to BUZZ (mouth publicity) and media attention. Price The industry players will try to lower the procurement, production and distribution costs through programs such as JIT, JITD, TQM, Per SKU cost/Revenue analysis and will pass on these benefits to end consumers in terms of lowered prices.

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References:
[1] -- http://way2wealth.com/reports/RR150420084.PDF

[2] -http://www.tradeindia.com/newsletters/trade_news/interview_10_oct_2006.html

[3] -- http://www.ibmabiscuits.in/industry-statistics.html

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