Confectioners relieved at falling sugar prices

Confectionary manufacturers are heaving a sigh of relief over falling sugar prices. Margins, they say, are up by four to five per cent, as sugar prices have fallen to around Rs 33 a kg compared to Rs 45 a kg in January.

Sugar constitutes 80 per cent of the raw material in making candies. The Rs 3,500-crore confectionary industry, according to estimates, saw their margins affected by 10-15 per cent during the time prices had peaked.

Perfetti Van Melle, the market leader in organised confectionary (25 per cent value share), said margins were affected very badly during that time. “The main problem was the loss in terms of value engineering, production, packaging and manufacturing. That was a challenge and difficult to address”, said Sameer Suneja, its managing director.

In response, Perfetti had, among other measures, launched smaller candies by reducing grammage. It had also launched Chocoliebe at a Re 1 price point, a first for it.

For confectionary maker Parle, the main challenge was to cut costs while maintaining the price points. “It was certainly a tough time, but now things are much better but it still remains to be seen how we can cut costs in terms of capacity, utilisation and cutting on trade margins,” said Mayank Shah, group product manager. 

Costing by most companies at the start of the year had been done at Rs 15-20 per kg of sugar. When prices hit the Rs 45 mark, they had to battle for margins. Ravalgaon, one of the oldest companies in hard-boiled candy, the worst affected by the price rise, said profits were cut by 50-60 per cent in that segment, and by 40-50 per cent on soft candies. 

“We stuck to our core products. We are looking at increasing our prices soon, though we do feel sugar prices should stabilise anywhere between Rs 35-40 per kg,” said H P Mistry, its general manager, sales and distribution.

Analysts are not bullish about the relative stabilisation in sugar prices. ”It is too volatile a sector, in terms of its dependence on the monsoon. When prices soar domestically, the government does look at imports from Brazil and Cuba, which unfortunately are not doing well either. So, this is not long term, but a momentary respite,” said Anand Ramanathan, manager, KPMG Advisories.