FMCGs: Biscuit industry shows impressive figures

Volumes and inflation combine to bring significant growth in revenues.

KARACHI:

In a strong sign that the growing appetite for branded biscuits and increasing market penetration has helped the fortunes of biscuit manufacturers, the two main players operating in the country have boosted their revenues by more than a fifth during the four-year period ending in June, 2012.

The revenues of English Biscuits Manufacturers, which claims over 40% of the branded biscuits market, have clocked in at a compound annual growth rate (CAGR) of 26% from fiscal year (FY) 2009 to FY2012. Continental Biscuits Limited, another important player, has a CAGR of 23.7% during the four-year period.



Market analysts attribute the growth of the branded biscuits category to multiple factors including higher consumption of the fast moving consumer goods, increasing market penetration, higher volumes and double-digit inflation rate. The growth figures, however, indicate a transformation in the biscuit-eating habits of the Pakistani consumers.

“With the passage of time, more people have switched to branded products, as we have already seen in the case of branded milk,” said Muzammil Aslam, an economist and Managing Director of Emerging Markets Research.

Talking about the branded biscuits, the economist said that an improved distribution network, quality control and the rising culture of ‘tiki packs’ are some of the main factors contributing to this growth.

As opposed to the party packs these companies also sell, tiki packs are more affordable for people with small incomes, Aslam said. Additionally, he said, market penetration has increased as a large number of new stores have opened up both in rural and urban areas thus increasing sales.

Given the dismal business environment in general, the aforesaid growth figures seem to be impressive.

However when inflation rate for the period under review is taken into account, Aslam says half of EBM’s growth seems to be driven by inflation. The average inflation rate from FY2009 to FY2012 was around 13%. Wheat and sugar being the main ingredients, inflation always has an impact on this business, said Aslam.

Another unlikely source of growth, branded biscuits were one of the basic food items distributed among victims of natural disasters – and, in the process, helped in the sales growth.

“Instant foods, such as branded biscuits and packaged milk are the basic relief goods distributed among survivors in case of a natural calamity,” said Khurram Shehzad who is Head of Research at Arif Habib Corporation. “The period under review covers both the 2010 floods and the heavy monsoon of 2011, which caused serious damage to the country,” he said, hinting this might have made some contribution to the said category.

In FY2011, the fiscal year covering the 2010 floods, both EBM and CBL increased their revenues by a third to Rs12 billion and Rs6.4 billion respectively. In FY2012, the fiscal year covering 2011 monsoon, EBM saw its revenues increased by almost 30% to Rs16 billion while CBL’s revenues increased by 15% to Rs7.3 billion for the period.

The Express Tribune could not get the companies’ version about the subject as neither of them responded to queries. However, Shehzad observed that the revenue growth was significant despite a high inflation rate.

It is still impressive growth even if one adjusts the growth figures against inflation, Shahzad said. Additionally, these companies have increased their product range by introducing new products in the last few years, he said. Their marketing and advertising campaigns also became more rigorous, he said.

Shehzad further said that private consumption in the fast moving consumer goods section has increased significantly during the past few years, which can’t be ruled out – the consumer spending increased by 26% between 2010 and 2010, according to a November, 2012 report by Bloomberg.

Shehzad said, “They have the pricing power but they also played on volumes.”

Published in The Express Tribune, October 10^th, 2013.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.