HLL changes track in confectionery business  ( April '26,2004, The Times of India)

Hindustan Lever is altering its distribution network and pricing strategy to push up volumes in its slow-moving confectionery business.

Max, the umbrella brand under which HLL launched its confectionery business 3 years ago, has sales of just about Rs 50 crore. According to AC Nielsen ORG, marketshare of Max remains under 5%, while organised confectionery industry (excluding chocolates) is estimated at Rs 1,200 crore.



HLL is setting up a fresh sales force for confectionery and has begun appointing exclusive distributors. An HLL spokesperson said: "Max brand is available in about 1 lakh retail points. Its distribution is focused on markets with over 5 lakh population."



However, industry analysts feel appointing exclusive distributors for a single brand may not work in the long run. Besides, they add that HLL's margins in confectionery haven't been competitive, leading to a distribution challenge in most cities. While retail-level trade margins for confectionery (including special schemes) hover around 20%, distributor margins average 5-7%.



The brand's aggressive entry-level pricing strategy — at 25-50 paise price points — has now been revised to 50 paise and Rs 2. Analysts say HLL's 25-paise pricing strategy — a first for organised players — could have been leveraged by putting pressure on competition. But Max wasn't given enough brand-building support, even though confectionery was identified as a growth engine by HLL management 3 years ago, say analysts. Max candy is being sourced through third-party manufacturing deals in Gujarat and Bhopal.



Players in organised confectionery industry are already grappling with a 16% excise duty and have been walking the tightrope between either hiking prices or squeezing margins.



The majority market is split between Perfetti, Joyco and Nestle, followed by Warner-Lambert, ITC, Parry's, Wrigley's, Candico, Cadbury and Dabur's Hajmola candy. The industry is loosely divided into hard-boiled candies, eclairs, chewing gum, bubble gum, mints and lozenges.