Brand wagon ride proves costly for sugar firms

India's biggest sugar company, Bajaj Hindusthan has said it is not keen to enter the branded market. The decision is not surprising since companies which are already in the branded sugar business are struggling to find consumers who are willing to pay extra for the brand value.

"Indian consumer is still not ready to pay extra Rs 1-2 per kilogram for better quality sugar. Companies need to invest for quality, packaging and advertising which adds to the overhead costs. But with the consumer unwilling to pay, the profitability of the whole investment goes down," said a Bajaj Hindusthan spokesperson.

Branded sugar in India is yet to come of age. Domestic branded market value is still minuscule, less than Rs 100 crore per annum, out of the total sugar market worth Rs 30,000 crore per annum. While unbranded sugar is sold at Rs 19-22 per kilogram, branded sugar comes at Rs 24 per kilogram.

Though established in the market, Dhampur Sugar's brand, Dhampure, accounts for less than 1 per cent of total sales, as Gaurav Goel, joint managing director puts it. The company is not spending on advertising following this.

''But experience so far is satisfactory and potential is good. Five years down the line, we expect close to 5 per cent sales from it, " says Goel.

Dhampur, however, does not plan any new products to boost sales for at least the next two years. "We will be reviewing our strategy in branding after two years and may even consider expansion then," added Goel.

Tight margins proved costly for Balrampur Chini, which had launched India's first sugar brand.

"Out of the Rs 700 crore turnover in 2003-04, only Rs 1.5 crore came from branded sugar and we have put an end to the business. Now, again the company is planning to launch superior products and a sustainability study is on", said Kishore Shah, chief financial officer with the company.

In sugar business, margins are tight and retailers across the country strongly control the market and industry insiders suggest that all companies are losing money in branded sugar business but are not ready to acknowledge it. Mawana Sugar gets about 2-3 per cent of its turnover from the sale of branded sugar, Mawana.

Last year the company's turnover was Rs 600 crore. "We expect profits to improve with a positive price outlook for the commodity. Also, research is underway for launching sugar cubes and satchets," said Susheel Mehrotra, general manager with the company.

Despite their smaller presence in the market, the Modi Group is also strongly interested in branding business. Over the next five years, the company has lined up various innovative product launches.

"Our focus is on niche segments like refined white sugar, cubes. Now we have plans for a range of premium products, which will include products like Halfspoon," said Abhishek Modi, executive director with SBEC Sugar Ltd, a Modi Group subsidiary.

BHL, the domestic market leader, with 5.6 per cent market share, expects to increase it to 9 per cent in 2006-07.

However, the company wants to stay away from branding business. "Companies struggle to make extra money in branded sugar. If we are able to sell our produce easily without higher overheads, why get into another business where the returns are not high and recovery time long," said a BHL official.