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How Perfetti command price premium through brand building

Popular marketing theory says brand building can help command a price premium. However Perfetti turns this theory on its head. The confectionary brand is today a Rs 1,200 crore company.

Jan 19, 2011, 12.56 AM IST
He runs a company that operates in an impulse purchase segment, at an almost unmanoeuvrable price point and is endlessly buffeted by the sword of high commodities prices. And yet, Sameer Suneja, MD of Perfetti Van Melle India (PVMI) sports a ‘Happydent’ smile. Perfetti India has touched a Rs 1,200 crore turnover, not an insignificant achievement given the segment.

A Nielsen survey pegs the per capita consumption of sugar confectionery for every Indian at close to 200 grams per year, translating to about 50 pieces of candies and gums per Indian, per year. Compare this to traditional Indian sweets and the number is likely to be significantly higher. So a country of a billion consuming 50 pieces of confectionaries like candies and gums may be small, but it presents both opportunities as well as challenges. And Suneja would like to see the glass as half full, rather than half empty. For he knows the battle to move beyond the Rs 1,000 crore mark has just began.

For now, Suneja is relishing the moment, almost like a child at a candy store. Around 16 years back, Perfetti entered a market characterised by strong regional players and a few national players. “The sugar confectionary market then was of low quality and undifferentiated offerings. Our estimate of the size of the market then was around Rs 300 crore and we were looking at not only acquiring marketshare but also expanding the market,” he says.

In the over Rs 3,700 crore non-chocolate (confectionary) market in India, PVMI according to market estimates commands over 25% with the rest divided between ITC, Parle, Wrigley and Cadbury among others. Expanding the market for Perfetti has been achieved by forging long lasting relationships. Be it agencies like McCann or Ogilvy or creating a distribution system customised for vendors, Suneja says it has helped establish the various brands in its portfolio. PVMI doesn’t mind taking risks without losing sight of its target, consumers.

Today, with brands like Happydent, Centre Fresh, Mentos, Big Babol and Alpenliebe to name a few, Perfetti’s marketing and advertising budget of Rs 100 crore comprises of edgy communication not only on television (remember the Happydent commercial was touted as a a strong contender for the Grand Prix at the Cannes Lions in 2007?) but also virals like ‘Daddu ki amanaat’ for Perfetti Protex.

In fact, to create a seamless bridge between in-house marketing team and external partners, PVMI has recently created a media manager role within the company. Prasoon Joshi, executive chairman, McCann Erickson India says, “Not many clients have partnered us the way Perfetti has. At times we feel like suppliers to clients, but Perfetti has always made us feel that we are party to the brand’s success.” McCann handles advertising for Happydent, Alpenliebe, Chlor-mint and Big Babol among others.

Joshi cites another example of the creative freedom, “The Happydent photographer ad was one that I made on my own. The brief given was a different one, but I had a gut feel about the product, shot the ad and showed it to Sameer and he instantly liked it,” says Joshi. The ability to take risks is attested to by Abhijit Avasthi, co-NCD, Ogilvy. Avasthi recollects an incident when AK Dhingra then the director, sales & marketing at PVMI brought a jar of candies and told us to eat them. “And then make an ad. There is nothing like a written brief with them,” says Avasthi.

“While their communication has been top-of-mind, it can only help when you have a good product and that is obviously something they have got right,” says Pinakiranjan Mishra, partner and national leader, retail and consumer product practice, E&Y. This is a fact the Italian confectionary major identified long back. From the very beginning, Perfetti focused on localising its products to match Indian tastes, a strategy followed by the company across the globe.

“Brands are localised not just for India but most countries that the company has operations in. It is of paramount importance to alter product recipe to appeal to the local consumer as it results in far greater acceptance.” explains Suneja. Besides localisation, PVMI house has also developed many brands specifically for the Indian market – like liquid filled gums Center Fresh/Center Fruit, filled candies Alpenliebe Mangofilz/Creamfils.

In addition to this, some products were first launched in India and subsequently taken to other operating countries, “Creamfills launched in 2005 and Mangofillz are examples of the ‘Born In India’ phenomenon. There are a lot of flavors that are completely conceived and developed locally which may not exist in other parts of the world,” says Suneja.

The company has also done numerous innovations in distribution and packaging to gain share of wallet. While most FMCG companies cover retail outlets and service them once a week, to maximize SKU/brand placement and facilitate better rotation of money from paan/bidi oulets, PVMI services retail outlets at least thrice a week – “We have the largest distribution reach among FMCG companies in India”, claims Suneja.

Their distribution model divides the entire brand range among three distributors, called P1/P2/P3 and the same outlet is serviced by all three distributors every week, but with a different range of products. Apart from the distribution structure, brands are available in multiple flavours, packaging formats at different price points in pouch, small jar, bigger jar, depending on the type of outlet, the retailer keeps the SKU.

However market observers believe that distribution will be a challenge in the time to come for companies like Perfetti. The kirana, grocery store and even the local chemist shop space today commands a premium with FMCG, pharmaceutical and even food brands seeking the retail shelves. In such a scenario, an impulse item at a low price point may feel a space crunch inside the store, remark market observers.

Centre Fresh is the largest confectionary brand in India with sales close to Rs 240 crores and Centre Fruit is the fastest growing brand in sugar confectionary for the past two years, according to Nielsen. Another challenge for Perfetti is looking at upgrading Indian consumers to a price point higher than 50 paise and Re One.

Competition, remarks a market observer, is also trying to push the price points but have found the going difficult. In gums, Perfetti, says Suneja, already operates at the Re 1 price point and have recently launched Fili Folly which has been priced at Rs 10.

“In addition to this, we have innovative formats like the blister, stick packs, fliptop and the pocket bottle that are selling at the Rs 5, Rs 10 and the Rs 30 price point. To that effect there is a lot of work underway to upgrade price points,” he says. So far in the confectionary category profitability has been dependant on increase in volumes, whether PVMI can change this by increasing the ticket size remains to be seen.

An industry observer makes an observation, “Perfetti is a fierce competitor and knows the confectionary business extremely well. They have launched a lot of brands together but I am not sure if each of them is doing well. Achieving Rs 1,000 crore turnover is a huge challenge but whether they can manage to hold on to the price points going forward remains to be seen,” he says.

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