New Delhi, Feb. 22 The cola majors Pepsi and Coca-Cola India stand to lose Rs 300 crore or more annually from the recent hardening of sugar prices.
The increase of Rs 4.50 to Rs 5 a kg since October could prove a bitter pill for confectionary and biscuit makers such as Britannia, ITC and Nestle as well.
The spokespersons of both the cola companies declined to give details of their sugar consumption needs. Every one-litre bottle of carbonated drink contains around 120 gm of sugar.
According to an ACNielsen report for 2006-07 - the last and probably only authentic survey on sugar usage trends - the carbonated beverages segment consumed 7.89 lakh tonnes (lt) of sugar, with organised players accounting for roughly 90 per cent of this.
Taking a conservative seven lt figure for just the two cola companies, a rise of Rs 4.50-5 a kg would translate into a combined annual outgo of Rs 300-350 crore. This is more than their yearly ad budgets - estimated at Rs 130 crore for Coke and Rs 145 crore for Pepsi.
The cola majors are not the only ones to be affected by costlier sugar. During the year ended March 31, 2008, Britannia Industries consumed 1.15 lt of sugar, with the same amounting to 59,217 tonnes for ITC and 45,057 tonnes for Nestle India. For Britannia, every Re 1 rise in sugar prices entails an extra expenditure of Rs 11.50 crore; a Rs 4.50 a kg increase would set it back by some Rs 50 crore. “If you compare over January last year, sugar prices are higher by almost 45 per cent. This has obviously impacted our input costs negatively”, said Ms Vinita Bali, Managing Director of the Rs 2,600-crore bakery products company. Britannia’s main rival, Parle Products Pvt Ltd, may, however, be somewhat better placed because of a captive 3,500-tcd sugar mill it owns in Uttar Pradesh.
Ex-factory sugar prices are now averaging Rs 20-plus a kg against the Rs 12.50-13 levels at this time last year.
“The steep jump in sugar prices will certainly put pressure on our margins. And the outlook does not look positive even for the months ahead”, noted Mr Sameer Suneja, CEO of Perfetti Van Melle India, which owns the ‘Alpenliebe’, ‘Center Fresh’ and ‘Mentos’ confectionary brands.
The President of the Indian Confectionary Manufacturing Association, Mr B.K. Gurbani, said that it is difficult to pass on higher sugar costs to the consumers because of price point and coinage issues peculiar to the industry. The MRP of a Re 1 toffee cannot be raised to Rs 1.30 or Rs 1.45; doubling it to Rs 2 would put off consumers.
The ACNielsen survey estimated the country’s sugar consumption during 2006-07 at 18.23 million tonnes. The bulk of this was by industrial consumers (5.26 mt) and small businesses such as sweetmeat makers and restaurants (5.51 mt). Households consumed only 7.46 mt or 41 per cent of the total.
Sugar price rise pain for cola majors, biscuit cos
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