Inflation Eats Up Profit Margin of Small and Medium Biscuit Manufacturer

Inflation which  is in double digit  range of 11-15% has made small and medium biscuit manufacturers  reporting lower profit margin . Prices of  major raw material  ,packaging , fuel and transportation  have reported significant rise in recent times  which makes  maintaining present price s of  biscuits difficult for  these small biscuit manufacturers . These manufacturers have to compete with big players like Britannia , Parle and ITC    due to economies of scale such companies could get better prices from suppliers and manage to give products at lower prices  preventing any major price hike by these small players 

Article from BS


The increase in commodity prices, coupled with rising fuel and power costs, is eating into the margins of local biscuit manufacturers in Andhra Pradesh.

“We are facing a lot of competition from market leaders like Parle, Britannia and ITC. The cost of production has increased, but since they do bulk business, in both sales and purchase of raw materials, they get bigger discounts. But small and medium manufacturers have no scope for bigger revenue,” said Somasuresh Kumar, a director of Biking Foods Private Limited.


Sugar prices have increased by around 50 per cent to Rs 27 a kg from Rs 18 kg in 2008 while vegetable oil is up to Rs 51 from Rs 43 in the January-March quarter. The main raw material, wheat, has increased by Rs 3 a kg and is now ruling at Rs 15 a kg.

“The actual cost of the product has increased by 8-9 per cent due to a rise in cost of packaging, raw materials and other expenses. We have only managed to hike the price by 3-4 per cent on some products,” he adds.
The cost of power, which used to be Rs 3.20 per unit before August 1, has increased 10 per cent Rs 3.52 per unit, with an additional charge of Re 1 per unit between 6 pm and 10 pm.

Likewise, the price of bio-diesel (used as fuel) has risen by 20 per cent since January this year to Rs 37 per litre, from Rs 31. Petroleum products, including polythene and poly laminates, which are the main ingredients for packaging, have seen a big jump in prices — from Rs 200 per kg in January this year to Rs 240-250 a kg since June.

read more on
http://www.business-standard.com/india/news/input-costs-eat-into-local-biscuit-makers%5C-profits/407963/