In a bid to de-verticalise operations, FMCG major Parle is tapping regional asset-heavy FMCG companies to outsource product manufacturing. While de-verticalisation in the FMCG sector has not been very popular with Indian companies so far, such synergies would help Parle bring down input costs to a large extent, say experts.
The FMCG major has tied up with the Priya Group to manufacture, supply and package wafers and snacks for its newly-launched brand Full Toss.
Under the agreement, Priya will manufacture 3,000 tonne potato chips and snacks annually for the FMCG major.
While FMCG multinationals like Sara Lee have already started outsourcing their manufacturing to some extent, Indian players are yet to tie up with asset-heavy regional players.
In order to gain market share, Parle Products has already re-launched Musst Chips and Musst Stix as Parle Wafers and Parle FullToss, in the last six months.
Moreover, in the last three months, Parle Products has ramped up distribution for its snacks business while coming up with several local flavours.
According to an Angel Broking analyst, it makes sense for the companies if they are gaining on the cost front. ?Moreover, it de-risks expansion operation for companies like Parle,? he said. He adds that successfully launching and increasing market share for a branded product in India is a challenge for FMCG companies.
Players like the Priya Group, which already has a strong presence in the east, will also stand to gain from the deal as it will be in a position to optimise capacity..
While no one in Parle could be reached for comment, GP Agarwal, MD of Priya Foods, said, ?We see a great synergy between the two brands. To duplicate our production facilities in West Bengal at current real estate price is not easy. Supply agreements, like the one between Priya and Parle, have set the ball rolling for leading FMCG brands to come together to share manufacturing infrastructure in order to streamline input costs.
Sources said that Priya Group will look forward to a similar deal with Parle for several other products.
Industry experts feel that asset heavy local players are actively exploring FMCG de-verticalisation opportunities as they are constrained by growth in their traditional markets.