Parle G, the single largest biscuit brand in the world, is under severe cost pressure due to a rise in input cost and implications of GST. The company recently expressed the threat of possible loss of jobs. Rajat K Baisya analyses the situation.
Recently there was a piece of news quoting Parle Products that if Goods and Services Tax (GST) is not reviewed 10000 people involved directly or indirectly will lose their jobs and become unemployed. It is too large a number for one food company to retrench but that was the news based on some statement given by a senior officer of Parle Products who has six contract manufacturers working for them in different places in the country including north and south India. Glucose biscuit is the largest segment in the biscuit category and Parle G is the leader. Parle G as a single brand is the world’s largest biscuit sold in terms of volume which itself is a big achievement for Parle Products. And it is 85% of the total business volume of Parles.
Obviously, this brand is under severe cost pressure due to rise in input cost and implications of GST. And that is the reason why Parle executive was so much concerned that he talked about it giving threat of possible loss of jobs to draw the attention of everyone. Press media covered it, there were tweets on this news and some Food trade magazines also carried the news with interviews of processors and consultants to draw the attention of everyone. Parle G is a big brand and any impact on sales volume will have its consequential impact on the company’s operations and performance.
Parle G is sold at Rs 5 a pack of 200 gms. This is a historical pack size, design and price point which has worked very well for Parle G. Nobody could beat them in this category. The company, therefore, will have to fight and do everything possible to retain the volume. And to retain volume this price point is important. Very convenient and affordable. I know many daily wage earners and even taxi drivers working odd hours on city roads have their lunch as well as evening snacks with one packet of Parle G and one cup of hot strong tea from the roadside tea stall. That is filling, gives enough energy for them to keep going even when they are on the move.
But Parle G or glucose category as such which is a mass-market common man biscuit is a very low margin product and one has to put together a tight and closely monitored working and managing its supply chain very efficiently. Otherwise, it will be difficult to retain the margin and with big volume company’s financial performance will get impacted negatively if margin declines. With the GST even after taking input credit possibly, the brand profitability is getting impacted. And that is the reason why they are crying foul and threatening.
However, one has to see the other side. GST implementation although happened very hurriedly under pressure which had many implications in business that have not been carefully studied before rolling out GST. But subsequently, many changes and revisions have happened partly also following the consultative process involving industry several times. And it may be difficult for the government also to revisit the GST rate every time. One option is to pass on the extra cost to the consumer but that may not be a wise thing to do. So what is the other option left for the industry to face this challenge which is creating cost pressure in business?
The only options left to the businesses to look at the end-to-end supply chain to see what can be done in terms of innovations to eliminate part of the excess costs wherever possible and that will not be impossible. The manufacturing, logistics and distribution area offers considerable opportunities to improve the value in the supply chain without compromising customer service delivery and customer service level objectives. The cost of input materials is still only not more than 30 percent of the end selling price and could be even lower. A large part of the efficiency comes from managing the other activities and functions in the supply chain and one needs to take an integrated view on the supply chain and logistics management.
If the industry only looks at the government to help them it will also make them complacent and uncompetitive in the long run. There are numerous tools and methods now available to better manage the global supply chain challenges to become more competitive and industry must try out those opportunities. The industry must realise that issues like taxes including GST and FSSAI or regulatory affairs impact all businesses equally. It is, therefore, the firm-level strategic initiatives that can make individual firms more competitive. And they must focus on those firm-level initiatives.
Competitiveness normally is measured at three levels- country, industry category, and firm-level. While country and industry category level competitiveness impacts firm-level competitiveness but it is the firm-level competitiveness that only comes into play and therefore, it matters as competition in the marketplace is amongst companies. Also, country level and industry category level competitiveness impact all firms in a category equally. The individual industry has no control over them and as such only firm-level strategic initiatives, drivers and actions can make all the difference.
Parle Products must see what they can do in the areas under their control which can make all the difference.
In addition, the industry is facing a downturn and slow down. The negative impact on automotive industry sales is the very severe and spiraling impact of that are also visible in other categories including the food industry. The latest GDP growth rate is shown as a 5 percent lowest growth rate in a decade. We have not seen such a low GDP rate for a long time now. There is no new investment happening. Foreign investors have withdrawn their money from the Indian market impacting the stock market negatively.
After coming back from Europe, I contacted my stockbroker to see new avenues of investment and he advised me to hold on. Real Estate is in deep trouble, large inventory remained unsold. Besides, there are natural calamities and to top it all we have Kashmir issue. J&K market and export trade volume with Pakistan has almost dried up. The cumulative effect of all these will also be seen in the processed food industry as well. Some of the product categories will experience de-growth due to economic slowdown.
However, industry survives the toughest times by making their products and services most cost-effective, by exploiting short term opportunities more effectively and also by making some toughest choices and decisions. The time has come to make those tough choices to ensure survival at least and if not the growth. But the tough player will still deliver growth in the most trying times like now that we are passing through as they say – when going gets tough only tough gets going.