The market seems to be betting big on the unlock trade nowadays. Sectors depending on consumer spending have been witnessing renewed buying interest on the hopes that the pent-up demand will drive their performance.
The obvious names that come to mind are hospitality stocks, consumer goods companies and even autos. However, the FMCG companies don’t quite enthuse many—for some obvious reasons, such as high valuations and the relatively unaffected nature of their business operations even during the pandemic times.
Today, we thought of speaking to you about one such ignored area—biscuits and bakery products. Well, many of you might feel, what’s new about them to discuss now?
Don’t you think as the vaccination drive gathers further momentum, the unlocking of the economy will become more durable? The transportation sector will thrive like it did during the pre-pandemic times and roadside tea stalls may become crowded places again? This might be a positive for biscuit manufacturers.
To fully understand the implications of unlocking on biscuits consumption, you must carefully observe the in-transit eating patterns of commuters in metro cities, such as Mumbai and Delhi, on any normal day. At the same time, happy eating at sophisticated cafes and consumption at office canteens might push the demand for bakery products up.
Unlike in many other industries, the unorganized segment holds a very low market share in the biscuits market. At present, biscuits and bakery products is the largest category of the Indian packaged food industry which is set to grow at a compounded annual rate of 9.1% over the next 5 years.
Typically, biscuits costing less than Rs 100/Kg come under the mass market segment. Those priced between Rs 100/kg and Rs 200/kg belong to the mid-premium segment. While those commanding more than Rs 200/kg are classified as premium biscuits. In other words, glucose is a mass market category while the digestive is a premium range. Marie and crackers are mid-premium products.
The premiumization is not only likely to be aided by growing income levels and the high aspirations of mid-income and high-income groups, but the rising awareness about healthy eating habits would play a crucial role too.
The packaged food companies have been launching mini-packs of health and nutrition products, which come at the price points of mass-market biscuits.
Mass-market products are vulnerable to price shocks. For instance, under inflationary scenarios such as the prevailing one, mass-market biscuit manufacturers find it difficult to pass on the rising input costs to their consumers.
Product innovation is another growth driver
Besides, premiumization, product innovation is also likely to play a crucial role in driving the revenue of mid-premium and premium biscuit manufacturers. For instance, the Digestive category, which caters to health cautious consumers, accounts for just 2% of the industry sales. It leaves immense scope for future product launches in the health and ultra-premium segments.
Our research team recently identified a biscuit manufacturing company that is likely to grow at a brisk pace going forward. And more importantly, it’s still available at cheaper valuations as compared to its peers. Click here to read more about this company.
We regularly publish such detailed coverage reports at our Research Desk. They might assist you in stock analysis that you might be doing at your end and eventually help you take well-informed investment decisions.
What’s true for biscuits is also relevant for breads and buns.
Players maintaining a consistency in the product quality and offering a dependable supply can benefit from the proliferation of quick-service restaurants selling burgers, pizzas, donuts and hotdogs. Moreover, the manufacturers of unique varieties of breads, such as Ciabatta, Panini and Focaccia, among others, may witness impressive growth since the branded segment is expected to do well in future.
In the pre-pandemic times, modern trade contributed 17% in the sales of branded biscuits and the rest came from general trade. Modern trade outlets such as hypermarkets, supermarket, etc., offer volume-based deals (for instance buy 3 get and 1 free). Hence, they fetch higher sales per square-feet of space as compared to traditional general trade channels. Expansion of modern trade will be a positive for biscuit manufacturers.
India’s market share in global biscuit exports is in the range of 2.3% to 2.9%. Some listed companies are leading biscuit exporters. North America, Europe, Middle-East and Africa are some of India’s top exporting regions. Companies which can invest in supply chains and keep their manufacturing costs attractive, without compromising on quality, will continue to do well in the export markets.
Global experience suggests that the impact of the subsequent waves of pandemic on businesses is relatively less intense. But the second wave has dented household savings in India and affected the purchasing power of individuals. However, it remains to be seen whether the impact is transient or lingering.
Rising inflation is a negative for biscuit manufacturers but the impact defers from one category to another. For instance, the mass market segment feels the heat of rising inflation since buyers are price cautious. As against that the manufacturers of premium biscuits find it relatively easy to pass on price increases.
It remains interesting to see how strongly consumption bounces back post-pandemic. As far as the market for biscuits and bakery products goes, product innovation and premiumization would hold the key.
Hope you didn’t miss our coverage of Mrs Bectors Food
Our research team released a detailed coverage report on Mrs Bectors Food on June 3, 2021. It is one of the fastest growing FMCG companies in the mid-premium and premium biscuits segment. Our research team believes that there’s immense growth potential for the company, which might result in the re-rating of the stock. You can access the stock research report on Mrs Bectors Food here.
You may also like to read: Making sense of market madness
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