Thursday, October 28, 2010

Noodles may now weigh less

Companies that have stuck their forks into the Rs 1,200-crore instant noodles market are now under pressure to raise prices due to rising input costs. But since nobody wants to abandon the Rs 10 price point, some are reducing grammage. 

Nestle recently reduced the grammage of Maggi instant noodles (masala) from 90 grams to 85 grams. Company spokesperson Himanshu Manglik said noodle packs come in the 60-90 gm range, all for virtually the same price. "Despite the marginal reduction in grammage, Maggi ensures balance of high quality and nutrition," he said. Maggi is the market leader with a share of about 80%. 

With new entrants like ITC's Yippee, Glaxo Smithkline's Foodles and HUL's Knorr soupy noodles, the market is getting crowded and established brands are facing the heat. So, ITC has come in with a 90-gm pack. Private labels are also upping the ante by offering value-formoney packs with higher grammage. Big Bazaar's private brand Tasty Treat offers a 90-gm pack. Spencer's private brand Smart Choice offers as much as 100 gm. 

Along with competition comes rising input costs, especially that of wheat (Rs 1,100/quintal in March, now Rs 1,300/quintal) and edible oil (Rs 460/10 kg in July, now Rs 510/10 kg). All these factors are hurting margins. 

Nestle says it is countering rising input costs by focusing on five elements — innovation and renovation, new technology and processes to increase manufacturing efficiencies, balancing the portfolio mix and acceleration of what it calls the Continuous Excellence Programme and LEAN Mindset. "Price increase is the fifth element and used only when it is absolutely necessary," said Manglik. 

Shirish Pardeshi, a senior analyst at Anand Rathi, agrees that increasing prices or reducing grammage is usually the last measure. "Nestle has been able to manage margins. There is some leverage within the system to manage costs. But volumes are very crucial for the company," he said. 

There are others too who are looking at innovation that can eventually lead to better margins and/or greater marketshare. Foodles has leveraged Horlicks' health and nutrition platform to offer 80-gm packs for Rs 10. 

Devendra Chawla, business head (private brands) at Future Group, says the company is planning to introduce Mumbai masala and Punjabi masala variants. 

However, there are differences in the industry on the issue of reducing grammage in a category like food. Some think it's tantamount to misleading customers. "Many consumers look at the price and not the weight. They purchase a meal need, but reducing grammage is like hitting a need," says M N V V Prasad, GM-sales and marketing at the Bangalore-based Indo-Nissin Foods that produces the Top Ramen brand noodles.