The Rs 2,000-crore family-owned Shakti Bhog Foods Ltd plans to foray into the Indian biscuits market with the launch of its “healthy” biscuits, christened ‘Divs’.
Shakti Bhog had started work on a biscuit plant in Haridwar in the early part of the year by investing around Rs 75 crore, and plans to have ‘Divs’ on store shelves by early 2010. It expects the biscuits segment to rake in Rs 250 crore by the end of the financial year 2010-11.
The focus of the company will be on “health biscuits”, with the primary ingredients being wheat, fibres, oats and multigrains, according to Shakti Bhog Foods Managing Director K K Kumar.
“Shakti Bhog can diversify into biscuits confidently because we make our own ingredients and raw materials,” he reasons, pointing out that “...the dough we use is not procured from elsewhere but is a company product in itself. Therefore, there is a lot of consumer confidence in our products”.
Analysts concur that, strategically, Shakti Bhog is making a good choice by planning to enter a highly-consumed product market. They add, however, that there are many hurdles to cross.
For one, competition in the estimated Rs 9,000-crore biscuits market is intense. This April, FritoLay India — the food division of PepsiCo India — entered the organised biscuit market. Parle, though, remains the biggest organised biscuit maker with a market share of about 40 per cent. Next comes Britannia with a market share of around 38 per cent. Parle’s Monaco and Krackjack enjoy a 45 per cent market share in the salted biscuits’ category.
ITC Foods, with its ‘Sun Feast’ brand of biscuits, is estimated to have an 11 per cent marketshare. In addition, Surya Food & Agro Ltd also sells its ‘Priya Gold’ range of biscuits in the domestic market.
Recently, it was reported that the Aditya Birla Retail (ABRL), too, plans to enter the two biggest biscuit segments — Marie and Glucose — which are dominated by Britannia and Parle, with in-house brands. ABRL already has private labels (in-house brands) such as Feasters and More in the biscuit market with various cream and butter biscuit offerings.
“Medium-range biscuits, which is primarily the space that Shakti Bhog wants to operate in, is overcrowded. Besides, the whole idea of buying a biscuit is based more on product differentiation as biscuits don’t depend on costs but taste. So they need to have a very strong promotional campaign in order to see profits,” Evalueserve Assistant Vice-President B Vijayalakshmi cautions.
Kumar, however, insists he’s ready to face the heat. He plans to spend around Rs 15 crore on advertisements to promote all his products (including ‘Divs’) and has roped in Karishma Kapoor as brand ambassador.
Shakti Bhog, according to Kumar, has other expansion plans too. For instance, it has earmarked an additional Rs 125 crore to set up three more processing units in Delhi, Greater Noida and Indore to expand its wheat, rice and gram flour production. These plants are in addition to its existing 14 manufacturing units.
Once the expansion is complete, Kumar is expecting his new ventures to add Rs 1,000 crore to the top line. Wheat processing currently contributes to 60 per cent of the company’s revenues.
With the setting up of these new processing units, Shakti Bhog is hoping for a 10-15 per cent market share by the next financial year and is looking at capturing the South Indian market, just north India, where the company has a marketshare of more than 60 per cent of the Rs 4,000-crore branded ‘aata’ (flour) market. Shakti Bhog also plans to enter Tier-II and Tier-III markets in South India by next year.
The Rs 2,000-crore company — which, according to Kumar, is growing at 30 per cent annually — believes that the branded ‘aata’ market has great potential among Indian consumers. “It’s about the faith that consumers have in a branded product,” explains Kumar. Shakti Bhog, Kumar says, plans to list on the Indian bourses in 2011. Analysts, however, are not too bullish about the company’s prospects.
“One cannot expect big profits from the packaging of raw materials. The operating costs for a company like Shakti Bhog, which is an unorganised player, is fairly low. Besides, commodity prices are too volatile for them to be profitably traded in an organised market,” says Purnendu Kumar, an analyst from Technopak India Ltd.
