Leading confectionery player Perfetti Van Melle India has been scaling up strongly with its global and homegrown brands. In an interaction with businessline, Nikhil Sharma, Managing Director, Perfetti Van Melle India, discussed a range of issues including how GST reforms are a game-changer for the confectionery industry and the company’s strong premiumisation strategy.
How has the confectionery industry performed in the past year?
By nature the confectionery industry — especially sugar confectionery, keeping chocolates aside — is largely driven by impulse purchases. The industry is not a driver of trends. It follows the same trends as the overall consumption basket, albeit with a lag. When the overall FMCG industry first senses a consumption slowdown, the confectionery industry is still riding the wave; and when they begin seeing recovery, it is still lagging.
So while there were pressures in the past, the GST reforms announced last September were a shot in the arm for the confectionery industry. We are riding that wave of consumption increase and we do see a significant tailwind. Our growth in the last six months has been very good… in high double digits. We have truly benefited from the GST reduction.
GST rate has been reduced to 5 per cent on both candies and gums. So there’s a net significant impact and the whole category benefits. Also, it has made the cost structures more conducive to offer more innovations. So, innovations that we had put on the back burner in India… we have the wherewithal to say, “Let’s look at these innovations now.”
What does the innovation pipeline look like, and does the GST cut aid your premiumisation strategy?
We are bullish about new launches at higher price points. In terms of categories, there is a lot of innovation happening in the jellies segment across the world and India has just started to see that happen. We’re lucky to be at the forefront of innovation with a very high share in that segment.
We are still selling some of our products at ₹1. So it has taken time to bring the premiumisation strategy to fruition, and it has to a great extent. The ₹5 and above price point now contributes 30 per cent to our portfolio. We’re hoping to grow the revenue share and availability of premium products. There are 8 million shops in India. Our portfolio of ₹5 and ₹10 products is available in a fraction of those shops even as they stock a lot of other categories at those price points. So, for us, the big win going forward is to make sure that our portfolio at price points of ₹5, 10 or 20 is available in more and more shops.
We have a reach of nearly 1.1 million outlets directly and are very proud of our distribution network. That’s where we are building competitive advantage. But our ₹5 products are available in only half a million outlets… we need to do better, and it’s a function of distribution — wholesale as well as consumer pool.
We are aiming to grow the revenue share of premium price points to 50 per cent, and brands such as Chupa Chups and Mentos will play a key role in this strategy.
What is your revenue expansion target? How are you managing cost pressures amid the West Asia crisis?
We hope to get to ₹4,000 crore turnover this year and double it in about four years. I think that is doable. We have the ammunition, the intent, the talent.
I’m going to go out on a limb and say that Perfetti, of all companies, has a much better ability to manage cost pressures, considering we sell products at ₹1 price points. Cost pressures are much more a part of our everyday ethos than in other organisations. So when we see such pressures, our first sense is to monitor and assess what kind of impact we are seeing.
What’s your view on the consumption trends in the coming months?
There have been a lot of conversations about how companies are now feeling the pressure of cost increase due to factors such as rising packaging costs. But for us right now, it’s more important to take advantage of this consumption spurt. So even though we do feel the cost pressures, we are not making any changes on costing or on product rates as we really want to ride out this wave… starting with the second quarter next year, maybe we’ll see fresh cycles coming in. I do see positive momentum this year. We may take a hit on profitability like everybody else. But again, if there is easing in geopolitical tensions then maybe it would not be as bad a scenario.
How are the key brands scaling up?
We have three global power brands — Chupa Chups, Mentos and Alpenliebe. We are incredibly fortunate that we have homegrown brands like Center fresh, Centerfruit,and Happydent, which are doing well. For instance, we are out of capacity for Happydent at all times and are constantly looking to expand it. Mentos and Chupa Chups offer huge potential for innovation. So we are firing on all cylinders right now. I mean, we couldn’t ask for a better set of brands, and they’re all doing well.
