Parle's Mayank Shah talked about why the biscuit industry seeks a saviour in government, Parle’s plan to increase product price even amid slowdown and why Parle could be forced to lay off thousands of employees.
Biscuit maker Parle is mulling another price hike for its standard biscuit brands including Parle-G (Glucose), Marie, and Milk range despite a slump in sales, as the industry reels under high raw material prices and GST cost, Parle Product’s category head Mayank Shah told Financial Express Online in an interview. The company is trying to cope up with high procurement prices of raw materials and also with high GST slab on both premium and standard cookies, Mayank Shah added. While Parle, along with other FMCG company bears the brunt of ongoing demand slowdown, Parle’s move to increase prices is counter-intuitive and the same would be a further blow to the demand, Mayank Shah conceded. But, the company may be forced to do so as it tries its best to avoid losses.
Mayank Shah talked about why the biscuit industry seeks a saviour in government, Parle’s plan to increase product price even amid slowdown and why Parle could be forced to lay off thousands of employees. Here are the edited excerpts with Mayank Shah’s interview with Prachi Gupta.
Britannia recently said that people are thinking twice even to buy Rs 5 priced products. What do you think about that?
We are on the same page as Britannia. People are thinking twice before buying our Rs 5 Gluco pack, Marie biscuits and milk pack. We too are seeing a slowdown in those varieties.
Would you go on to say that this is a sign of recession?
I would not say recession. It is too strong a word. I am saying slowdown. We are hopeful that this will not turn into a recession. We hope that sanity will prevail.
Why is Parle laying off employees? What has led to that?
What has happened is biscuits which were sold at Rs 100 per kg and below, I am talking about value products here, categories like glucose, Marie and milk, they were subject to higher GST rate. We’ve been requesting the government to reduce GST. In fact, it is not even a reduction in GST; we are just asking them to tax it at the earlier rate. So, prior to GST, these were exempted from excise, only sales tax was there.
What the government has done is they have clubbed biscuits which are premium in nature with the standard biscuit and subjected it to 18% GST. We have been requesting government for the last two years as it is not fair and is unjust to the middle and lower-income group. There is no processed food available in the market that is Rs 100 and below per kg in India. If you tax the common man’s food at 18% GST, it is not right.
The biscuit industry undertook a price hike after the anticipation of one and a half years that the government will accede to our request. These are extremely price-sensitive categories. What aggravated our situation was the slowdown in the economy. Coupled with price hike and slowdown, there was a dip in demand. As a result of that there a 7-8% slip in sales of these products. The situation is really grim because of the slowdown.
When was the last time that the government was approached with this issue?
We have continuously been in talks with the government. The issue was raised as recent as the election. Because of the election code, you are not allowed to do multiple things hence we were lying low but we have been talking to the government otherwise.
While biscuit makers have the GST issue, what is driving the slowdown for other FMCG companies?
Overall there is a slowdown but our problem is a little different. Our problem is increasing prices in price-sensitive category. If you are dealing in an extremely price-sensitive category and price hikes, the demand is going to take a hit. What is hurting us more is the general sentiment in the economy and general slowdown. So, it’s a double whammy. We are asking the government for some GST relaxation which is rightly due to us.
Today we have nothing to fight with. I cannot keep my rate same, nor can I take care of the economic situation.
In case the government does not help, what is the next step?
We are very hopeful that the government will look into this because everybody is worried about the state of the economy and from our talks with the government, it has been very pro middle and lower-income group.
But if things do not turn out as hoped, what is the plan ahead?
We would try our level best to ensure that we retain our prices and do all things as much as possible. Beyond that, it would be beyond our hands to do anything. We might take some stringent steps in that case to ensure that we are not losing money on these varieties.
So, you have already hiked the prices of these varieties. Do you plan to roll back to the previous prices?
No, we would have to increase the prices further because the raw material prices are again shooting up. So, you know that would be further decremental to the demand. We hope that the government will immediately intervene and help us out.
Maybe we will have to hike the price, maybe we will get leaner. We will do everything possible to remain profitable and not sell at losses. Otherwise, we would be forced to sell at losses if price not hiked.
In June, you said the slowdown is expected to go away in two-three months.
Yes, that was the expectation but unfortunately, that didn’t happen.
If the government reduces the GST as asked by the biscuit industry, when is that expected to yield results?
Immediate. Prime Minister Narendra Modi is intervening in the matter and the government does want to revive the demand.