Tetra Pak working to improve internal efficiency to overcome cost pressures

Faced with higher input costs on account of the Rupee volatility, Food processing and packaging solutions major Tetra Pak India is working on improving its internal efficiencies and achieve higher economies instead of an outright price increase to maintain its operating margins.

In the last four years, the company didn’t increase prices for the six-layered aseptic package and instead relied more on improving internal efficiencies in production as well as increase its sales, Ashutosh Manohar, managing director of South Asia markets at Tetra Pak India said.

“There is tremendous cost led pressure on us now and in the coming six months atleast operating margins will remain under pressure. But we are working on improving internal efficiencies to combat higher production costs”,  Manohar said.

Although, the firm sources its raw materials from domestic companies, around 60-70 per cent of its raw material used to make the 6-layer tamper-proof packaging is imported.

On the technological innovation front, the company is evaluating the possibility of bringing in digital printing technology in its Indian operations which it believes can be a disruptor in the packaging industry as it will help curtail costs and offer the company more flexibility in designing and printing.

In case it fructifies finally, it can potentially be the second major investment by the company in India – the last being its Rs. 7 billion plant near Pune which has an installed capacity to roll out 12 billion packs.

It is currently testing Dynamic QR Code technology with two of its FMCG consumers in India where the package or product lifecycle can be traced right to the farm origin.

Having presence in more than 160 countries, India, one of the top ten markets for Tetra Pak, contributes around 5-6 per cent of its global sales volume. Every year, it packs 650 million litres of juices and an equal volume of milk spanning across 22 product categories. 

Every year, the company has been increasing its sales volume by one billion packs witnessing around 10 per cent growth rate. The total sales from India, which is used primarily by the domestic FMCG companies as well as exported to Indonesia, Vietnam and other countries, stood at 10 billion packs. More than 60 per cent of this sales volume accounts for 200 ml packs.

Around 10 per cent of the production from this factory is shipped to Indonesia, Vietnam and others.

On the other hand, Manohar said that cheaper Chinese imports of aseptic packages are also hurting the company’s operations in India.

“On one hand we are paying taxes while, to the best of my knowledge, imports from China are getting an import duty reduction. We need to figure out how we are losing competitiveness because of this”, he said.

A six per cent GST is levied on the aseptic packaging paper and sources claimed that Chinese aseptic imports enjoy a three per cent dut,y waiver.

“We will approach the government to seek remedy on this. Currently we are studying our pricing vis-à-vis Chinese imports taking into consideration the taxation aspect”, Manohar added.

South Asia, East Asia and Oceania accounts for 18 per cent of the company’s annual turnover. As on January 1, 2018, its sales stood at Euro 11.5 billion.