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Publish Date: 2024-10-03

Harvard Case - Parle Products Private Limited: GST and Retaining Competitiveness

"Parle Products Private Limited: GST and Retaining Competitiveness" Harvard business case study is written by Veena Keshav Pailwar. It deals with the challenges in the field of Strategy. The case study is 12 page(s) long and it was first published on : Jul 12, 2019

At Fern Fort University, we recommend Parle Products Private Limited (Parle) adopt a multi-pronged strategy to navigate the challenges posed by GST and retain its competitive edge. This strategy involves a combination of operational efficiency, digital transformation, product innovation, and strategic partnerships. By implementing these recommendations, Parle can leverage its strong brand equity and market position to achieve sustainable growth and profitability in the evolving Indian FMCG landscape.

2. Background

Parle Products Private Limited is India's largest biscuit manufacturer and a leading player in the FMCG sector. The company faces a significant challenge with the implementation of the Goods and Services Tax (GST) in India. The new tax regime has led to increased compliance costs, complexities in supply chain management, and potential price fluctuations. Parle needs to adapt its business model and operations to remain competitive in this new environment.

The case study focuses on Parle's response to the GST implementation and its efforts to maintain its market dominance. The main protagonists are the senior management team, who are grappling with the challenges of navigating the new tax regime and maintaining profitability.

3. Analysis of the Case Study

To analyze Parle's situation, we can employ a combination of frameworks:

  • Porter's Five Forces: The Indian FMCG market is characterized by intense competition, with numerous players vying for market share. The threat of new entrants is moderate, while the bargaining power of buyers and suppliers is relatively low. The threat of substitutes is high, given the availability of various snack options.
  • SWOT Analysis:
    • Strengths: Strong brand equity, extensive distribution network, cost leadership, established manufacturing capabilities, and a diverse product portfolio.
    • Weaknesses: Limited online presence, potential vulnerability to price fluctuations, and dependence on traditional distribution channels.
    • Opportunities: Growth in emerging markets, increasing demand for healthy and convenient snacks, and the potential for digital transformation.
    • Threats: Competition from multinational brands, rising input costs, and regulatory changes.
  • Value Chain Analysis: Parle's value chain can be analyzed to identify areas for improvement in efficiency and cost reduction. This includes optimizing raw material sourcing, streamlining manufacturing processes, and enhancing distribution logistics.
  • Business Model Innovation: Parle needs to explore new business models to adapt to the changing market dynamics. This could involve expanding into new product categories, leveraging digital channels for sales and marketing, and exploring strategic partnerships with online retailers.

4. Recommendations

To address the challenges and capitalize on the opportunities, Parle should implement the following recommendations:

1. Operational Efficiency:

  • Optimize Supply Chain: Implement a robust supply chain management system to ensure efficient inventory management, reduce transportation costs, and minimize stockouts. This can be achieved through vertical integration and strategic alliances with logistics providers.
  • Streamline Manufacturing Processes: Invest in technology and analytics to optimize production processes, reduce waste, and enhance overall efficiency. This could involve implementing AI and machine learning for predictive maintenance and process optimization.
  • Cost Reduction: Negotiate favorable pricing with raw material suppliers, explore alternative sourcing options, and implement lean manufacturing principles to minimize production costs.

2. Digital Transformation:

  • Enhance Online Presence: Develop a strong online presence through a user-friendly website and mobile app. Utilize social media for marketing and customer engagement.
  • E-commerce Integration: Partner with online retailers to expand reach and tap into the growing e-commerce market. This can be achieved through strategic alliances and outsourcing of logistics and fulfillment.
  • Data Analytics: Leverage data analytics to understand consumer preferences, track market trends, and optimize marketing campaigns. This will aid in product development and market segmentation.

3. Product Innovation:

  • Health and Wellness Focus: Develop new product lines that cater to the growing demand for healthy and nutritious snacks. This could involve introducing organic and gluten-free options.
  • Convenience and On-the-Go Options: Introduce innovative packaging formats and product sizes that cater to the needs of busy consumers. This could include single-serve packs and convenient snack bars.
  • Value-Added Products: Develop products with unique flavors, textures, and ingredients to differentiate from competitors and attract new customers.

4. Strategic Partnerships:

  • Joint Ventures: Explore joint ventures with other FMCG companies to leverage complementary strengths and expand into new markets. This could involve mergers and acquisitions or strategic alliances.
  • International Expansion: Leverage Parle's strong brand equity to expand into new international markets, particularly in emerging economies with high growth potential. This requires a global strategy and careful consideration of government policy and regulation.
  • Corporate Social Responsibility: Embrace corporate social responsibility initiatives to enhance brand image and attract socially conscious consumers. This could involve supporting local communities, promoting sustainable practices, and promoting healthy lifestyle choices.

5. Basis of Recommendations

These recommendations are based on a thorough analysis of Parle's strengths, weaknesses, opportunities, and threats. They are also aligned with the company's core competencies, including its strong brand equity, extensive distribution network, and cost leadership. The recommendations address the needs of external customers and internal clients, considering the evolving consumer preferences and the need for operational efficiency. They also take into account the competitive landscape and the potential for disruptive innovation.

The recommendations are supported by quantitative measures, such as increased market share, improved profitability, and reduced costs. The assumptions underlying these recommendations are explicitly stated, including the continued growth of the Indian FMCG market, the increasing adoption of digital channels, and the growing demand for healthy and convenient snacks.

6. Conclusion

Parle Products Private Limited has a strong foundation to navigate the challenges posed by GST and maintain its market leadership. By implementing the recommendations outlined above, Parle can leverage its strengths, adapt to the changing market dynamics, and achieve sustainable growth and profitability. The company's commitment to innovation, digital transformation, and strategic partnerships will be crucial in its journey to remain a dominant player in the Indian FMCG sector.

7. Discussion

Alternative options include focusing solely on cost reduction, relying solely on traditional distribution channels, or neglecting digital transformation. However, these options carry significant risks. Focusing solely on cost reduction may lead to a decline in product quality and brand image. Relying solely on traditional distribution channels may limit reach and market penetration. Neglecting digital transformation may result in losing market share to competitors who embrace digital channels.

The key assumptions underlying these recommendations include the continued growth of the Indian FMCG market, the increasing adoption of digital channels, and the growing demand for healthy and convenient snacks. These assumptions are based on current market trends and industry projections, but they may change over time.

8. Next Steps

To implement these recommendations, Parle should establish a clear timeline with key milestones. This timeline should include:

  • Year 1: Focus on optimizing supply chain, streamlining manufacturing processes, and enhancing online presence.
  • Year 2: Introduce new product lines, expand into new markets, and develop strategic partnerships.
  • Year 3: Continue to innovate, expand digital capabilities, and strengthen corporate social responsibility initiatives.

By adhering to this timeline and implementing the recommended strategies, Parle can position itself for continued success in the evolving Indian FMCG market.

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Case Description

In July 2017, the government of India implemented goods and services tax (GST), which brought uniformity in the tax rates on all types of biscuits. Compared to the pre-GST regime, the uniform tax rate resulted in a higher tax rate on mass-market biscuits and a lower tax rate on premium biscuits. Parle-G, the most popular brand of Parle Products Private Limited (Parle), fell into the mass-market biscuit category. The Parle-G brand had 75 to 80 per cent market share in the mass-market biscuit category, and it contributed nearly 33 per cent of Parle's total revenue. The brand was sold at a very low price point and was highly price sensitive. To mitigate the tax rate increase, one option was to raise Parle-G prices; however, any price increase or change in package size for a product in the highly price-sensitive category could reduce company revenue. Therefore, new business strategies were needed under the new tax regime and amid the country's overall changing business and economic scenario so that Parle's margins and leading position were retained.

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