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As high inflation eats up kitchen budget, consumers choose to snack on biscuits

At ITC, differentiated health biscuits under Farmlite, filled cookies like Dark Fantasy Desserts, Vanilla Fills and Moms Magic Fills have added both to business and equity, Ali Harris Shere, chief operating officer (biscuits & cakes cluster), foods division, ITC, told FE.

As high inflation eats up kitchen budget, consumers choose to snack on biscuits
Most FMCG players in staples to discretionary items suffered a blow to their margins during the second quarter ended September 30, dragged down by high inflation and lower volumes due to continuing increase in prices of products.

At a time when inflation has hit consumers’ pockets significantly, the biscuits category has seen sharper growth compared with other snacking and packaged foods. Being the cheapest form of snacking, biscuits have also driven the overall growth of packaged food product sales in the current fiscal.

During April to September, sales of biscuits jumped over 16.5% year-on-year, while packaged food sales were up 14.1% y-o-y, according to data sourced from consumer data intelligence firm Bizom.

Britannia Industries has gained the most from the trend. Most FMCG players in staples to discretionary items suffered a blow to their margins during the second quarter ended September 30, dragged down by high inflation and lower volumes due to continuing increase in prices of products. Nusli Wadia-owned Britannia, however, surprised the Street with an expansion in margins.

Britannia’s gross margins were up 230 basis points sequentially to 38.3%. Its Ebitda margins expanded 270 basis points quarter-on-quarter to 16.3%.

The significant growth in the biscuits category has been despite price hikes by manufacturers. There has been a cumulative 32% rise in raw material inflation in the commodities relevant to bakery in the past seven quarters, while Britannia has taken a 22% price hike during the period.

“We were the first ones to action price increases and we took them much ahead of the market,” Varun Berry, vice chairman and managing director, Britannia Industries, told analysts in an earnings call recently.

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The category has also benefited from new product launches. At Britannia, new launches in biscuits in the June quarter — Nutri Choice Seeds, Herbs&Protein — have done about 2.5x the revenue in September quarter against the previous one. Similarly, Golmaal, a product launched only in the east market, has posted an 85% sequential increase in revenue.

At ITC, differentiated health biscuits under Farmlite, filled cookies like Dark Fantasy Desserts, Vanilla Fills and Moms Magic Fills have added both to business and equity, Ali Harris Shere, chief operating officer (biscuits & cakes cluster), foods division, ITC, told FE.

He said the biscuit industry has been facing volatility in raw material prices for a couple of years, he said, adding that Sunfeast has been tackling the challenges through cost initiatives and data model-driven efficiencies.

Analysts at Jefferies said, “Biscuits remain an affordable source of snacking, which gains share from other food products in an inflationary environment. Further, inflation should see a further slight moderation in second half, led by palm oil even as wheat flour and milk are elevated,” said analysts at Jefferies.

However, after September, there has been a dip in the category because the festive season saw a stronger push from gift pack sales of other categories, including chocolates and confectioneries. This resulted in a drop in sales in the biscuits category in October compared to the same month a year ago.

According to Bizom, part of the sales drop is also due to a decline in sales post-Diwali, which was on October 24 this year, against strong stocking last year, when Diwali came later on November 4. During October-November 2022, biscuit sales declined 15.8% y-o-y, while packaged food sales dropped 8.3%.

Akshay D’Souza, chief of growth and insights at Bizom, said biscuits, which have seen strong growth despite inflation worries, will continue to see traction and many more product launches in the category.

“Many Indians use biscuits as a regular part of their smaller meals throughout the day. Be it [tea and] biscuits, or tiffin snack or a serving to a guest visiting a home or office, biscuits have found strong acceptance being convenient and ready to eat. Also, with different options of biscuits catering to different segments of customers, there is now a wide variety of choices available to consumers,” he said.

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First published on: 26-11-2022 at 02:15 IST