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Saturday, February 10, 2007

How Perfetti realised gum cannot replace paan

Italian confectionery giant Perfetti has brought quality candies to the Indian market. Their Alpenliebe, Mentos, Center Fresh, Chlor-Mint and coffee-flavoured hard-boiled sugar treats like Cofitos have been well received by children and adults alike. With tastes shifting onto branded toffees and candies, which are priced at the same low rate of 50 paisa, that domestic candies cost, Perfetti seems to be gaining over a massive market.

There is the other mouth freshner that is equally popular in India - paan. This makes for a readymade platform for chewing gums or does it? Managing Director, Perfetti Van Melle, Stefano Pelle said, "When we came here, we thought that this would automatically translate into chewing, chewing gums but actually there has not been any indication so far. I would say that the overlap (between chewing gum and paan) is very limited. Since those who normally chew gum, we are talking mostly of children than we are talking of adults. In this country, there are those of a certain middle to upper-middle class, whereas paan chewers are normally lower-middle class. So overlapping is quite limited. I think paan chewing is habit of chewing, but it's a very specific kind of flavour and it's also something that has to do with the chewing sensation in itself. Some have tried to imitate the paan flavour but the success rate is not extremely high."

Having introduced Center Fresh 10 years ago and Alpenliebe, which is a candy was launched later but is larger selling. Could India be a more candy-loving country? Pelle agrees, It is. As a matter of fact, I would say that gums altogether account for less than 20% of the total sugar confectionary market, whereas candy is the biggest chunk as of today." So is this an international trend, where more candy is consumed than gum? Pelle said, "It is not. Normally, we see that the gum market keeps expanding with the maturity of the confectionary market, but I must say that when we came to India, the gum market was much smaller than it is now and the moment we, as well as other competitors started, have grown this market, which has now become four-times what it was 10-years before."

The benefits are there. This is a low value, large volume market and prices have remained unchanged for the past 10 years. Pelle agrees, "True, the peculiarity of this market is the fact that we sell basically in mono-pieces. Just to give you an idea, in India, over 90% of our sales is done in single pieces. Whereas in western countries or in Europe, this percentage would be exactly the reverse, it could be 5% in mono-piece and stickpack. So in India, since we sell in mono-pieces, the price point has been, since inception, at a half a rupee for candies and one rupee for the gum."

The price can't be raised "because we don't have the coins actually. The next price point would be 75 paise for candy and 25 paise (the change) is not so available. So even for the candies, you should double the price to one rupee. And as of today, the market is not ready. That's why we are stuck to this price point for the last 10 years. We cannot increase the price but we can introduce some products in a bigger pack or blister pack. We have just introduced the first blister pack in confectionary in India, with a sugar-free product."

Sugar prices have increased, so will maintaining prices at the same level be difficult? Pelle said, "Well the sugar price increase is really hitting everybody and I must say that we have been able to so far contain this price increase, by restructuring our products, by trying to find help - from other vendors in other kinds of materials - and if it goes like this, it might be the drop that really can take us to the next price point."

With Perfetti rousing the local market with its products and taking on competition head on, what is the domestic scenario like? He explained, "Initially, local companies have not really been able to stand the pressure of the biggest players and the investment in brand- building, that we have started. We have started to build brands, we have started to invest in advertising, they have not been able to do the same. To some extent, they might have been slightly more short-sighted than us. We have looked at the future, we have looked at investing today to get profits tomorrow.

He elaborated, "I must say that, for the last 2-3 years, the market has become tougher and tougher. New FMCGs have come in. Some seem to be about to go now, to leave the market after a lukewarm success. Now competition will be tougher and they (FMCGs) have just come out with something that is similar to our products, so competition will also increase.

Confectionery is a fun segment. So more money must be spent on advertising than on plant and machinery. Pelle said, "Yes, if we add up all the investment in sales and marketing that we have been doing for the last 10 years, it is definitely more and you need to invest a lot, in order to build a brand, which will stay. We are here to stay in India and we want to build our brands, and of course we have to be innovative - both in products, so (have to) come up with new technologies every alternate month - but also innovating in your advertising, because the advertising market is getting more cluttered everyday. There are statistics that says, that an average Indian sees 40 ads everyday, so if you want to be seen, you have to be different.

He does not see Perfetti getting into the medicated gum or any gum which is a tobacco substitute. India has been a generous market for him as "we have broken even many years back. We are a profitable company, yet as we were mentioning before the sugar issue today is hitting us." So, even he has to take the sweet with the sour!

Nevertheless, India remains a major market for him. He said, "It is still a relatively small market in terms of per capita consumption. We have one billion people here and still the market is relatively small, from what it could be. Here the average consumption per capita per year is around 250 gms of sugar confectionery in a year, but in Australia it 2.50 kg (per year). In July (2004), the Indian food laws has opened its doors to sugar- free products. So we have started manufacturing sugar-free products in India."

Some drawbacks remain. Like the Indian law is not compatible to the international law. Pelle emphasises, "It is absolutely non-compatible. It's very obsolete and a draconian law also to some extent. It's a 1955 law and it has not yet been transformed into an integrated food law. For instance, there are some ingredients, which can be used everywhere internationally, except in India." Italy or even China is more progressive in adopting new food laws. He explained, "Basically, they follow the Codex (a food standards guide developed by WHO and FAO) and there is nothing, which is allowed in the Codex, which cannot be used there. So we should do the same thing and we have been trying to push this through the Indian Confectionery Manufacturers' Association, ICMA, but it still takes time."

He does feel the winds of change in the air. There is a palpable difference in the way business is transacted. He elaborated, "Infrastructure has improved, communication, roads etc, even the attitude towards foreign investors, I must say is changing. Unfortunately, it is changing sometimes at the high level of the bureaucrat but it's not changing at the middle or lower level." All the same, he has enjoyed his Indian experiences. He reiterates, "I must say that I have enjoyed it. Sometimes I still get a little bit frustrated when I see that things do not work the way they should and the pace is slow, but I have enjoyed it."

Written for www.moneycontrol.com

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