PARLE G Case Study

Assignment Submission by:

Muhammad Taha (ERP: 13879)
Date: 6th April 2022

India introduced uniform GST scheme in 2017 and did not discriminate between premium and
mainstream categories of biscuits. The category of biscuits, in general, received a one-way ticket to be
taxed at 18%, by law. Let’s first define how a mainstream and premium biscuit is categorized in India.
Biscuits which cost less than 100 INR per kg are known as mass-market or mainstream biscuits whereas
those above it are referred to as ‘premium’. The reason behind why going ahead with discrimination
was need of the hour lies in historical tax rates for both variants. The premium used to be taxed at 24%
prior to the new tax policy whereas the mass-market used to be taxed at as low as 14%. Given the fact
that premium biscuits which essentially have better profit margins along with higher consumer price got
a whopping 6% relaxation in tax rate and mass-market biscuits which are themselves not an aggressive
profit maker for the company and unfairly escalated to be taxed at 4% higher infuriated the companies
which had mass-market biscuits as their bigger share in the revenue pie. One such company was Parle
Products Pvt. Ltd. which was home to the iconic Parle-G brand of mass-market biscuits.

Although Parle was home to several categories of FMCG namely staples, rusk, namkeen, confectionary
and a lot of other biscuits in biscuit category, Parle-G was the market leader in its segment and had
market share of 75 - 80% in glucose biscuits consumed in India. It accounted for 20% of the revenue in
overall 250 billion INR biscuit market of India. In Pulses, only 1% of total market was organized and
within the same, Parle was competing with various other brands. Revenue generated by Parle from Rusk
category only accounted for 1% of overall Parle revenue whereas in Namkeen, it accounted for only 3%
of overall revenue. Last category of confectionary brought in sizable pie of Parle revenue at 12% but still,
biscuits were the pillar of Parle’s standing and accounted 84-85% in revenue pie. Hence, it would not be
wrong to state that Parle had all of its eggs in one basket and within the one basket, all the eggs
belonged to only one source i.e even within Biscuits category, 80% revenue came in from only Parle-G.
In short, Parle-G brand was absolutely crucial to the company’s earning, standing and overall
sustainability. Since the tax increase directly affected this brand, Parle had a concerning position to take
up on how to tackle this major problem. Why the tax policy didn’t bother Parle’s competitors that much
is that competitors like Britannia, ITC, Surya had better running premium biscuits than Parle and
opposed to trouble the policy caused Parle, it soothed and encouraged the competitors for continued
engagement in the premium category. This was a heavenly call sent out of nowhere to Parle’s
competitors. They became more powerful, more cost effective and better able to drive Parle out of their
competition.

Coupled with above positioning, the dethroning of Parle by Britannia from top biscuit manufacturer to a
number 2 position just two years ago irked the pain even more for Parle in this wild turn of events which
favored Britannia.

Parle’s response was erratic negative to the policy but it could only do news rounds and chit chats. What
the management of Parle could do were 3 options:
 - Decrease distributor and retailer margin
- Reduce quantity/grammage in the packs
- Increase prices of their SKUs

All 3 options seemed to have large risks associated. The decrease in either the distributor or retailer
margin meant that the product push in market will become less automatic as middlemen will consider
other brands more incentivized. Reduction of grammage has been a tested option from historic moves
and posed a threat of sales decline of 30 to 50%. The final option of price increase might still be
acceptable, but it also posed a threat of sales decline as in the past, 0.5 INR increase in one pack brought
a 40% sales decline.

What I would suggest is a hybrid of above options along with aligning one more option:

- Strengthen the confectionary, namkeen, pulses and rusk category more to bear greater weight
of organization’s profitability and market share
- Increase prices of SKUs greater than 10 INR
- Reduce grammage in SKUs less than 10 INR

This is the minimum of how Parle-G can sustain the adverse impact on profitability by the GST
implementation. Already Parle-G is a low profit category hence Parle can’t ignore or absorb the losses
itself. It should pass on to the public in terms of grammage loss or price increase. For SKUs that sell
more, grammage decrease is suggested whereas those that don’t sell as hot cakes, their price needs to
be adjusted. However, Parle should never let go of its focus on this biscuit. What Parle-G does for Parle
is break the barriers of entry for their several other brands. Since Parle-G goes to almost all the shops,
Parle should bank on this value and propagate further business growth in other categories to make
those enter same shops and possibly, trust.