Snack makers tweak trade margins, engineer pouches to break ₹5 pack habit
BENGALURU: India's ₹5 snack packet, long the industry's workhorse, is becoming a liability as rising input costs squeeze already-thin margins.
After years of shrinking pack sizes to protect margins, manufacturers are now trying to steer retailers and consumers towards larger, more profitable stock-keeping units (SKUs), while redesigning packaging to contain costs, industry executives told Mint. Some are also expanding premium offerings for modern retail and quick commerce to lift average selling prices.
Over the past three to four years, brands including PepsiCo-owned Lay’s and Yellow Diamond have more than halved the weight of their ₹5 packs, from 25-30g to 11-14g. But further cuts risk alienating consumers.
“Reducing grammage is a dangerous strategy. There comes a point where you open a pack and find only five broken chips inside,” said Arvind Singhal, chairman and managing director of retail consultancy The Knowledge Company. “You cannot defend a price point that is fundamentally unviable.”
The ₹5 squeeze
Across biscuits and snacks, ₹5 and ₹10 packs account for roughly 60-65% of sales volumes, making them a key entry point for price-sensitive consumers, particularly in rural markets, according to industry executives.
Some manufacturers are particularly dependent on these packs. They account for nearly 65% of Balaji Wafers’ annual revenue, while Parle Products derives up to 75% of its revenue from the value segment. Gujarat-based Gopal Snacks gets 60% of its revenue from ₹5 wafer packs.
The economics are unforgiving. Of every ₹5 earned on a wafer pack, about ₹1 goes towards taxes and distributor margins and nearly ₹3 towards raw ingredients, frying oil and packaging. After freight and factory operating costs, manufacturers are left with barely 15-20 paise in net profit.
Input costs have risen sharply over the past six months. Cold-storage potato prices have jumped 30-40% amid lower yields in major growing states such as Uttar Pradesh and Gujarat. Edible cooking oil costs have risen 25-35%, driven by higher import duties and global price spikes.
The West Asia conflict has added to the pressure by pushing up crude oil prices, which can feed into the cost of petroleum-derived packaging materials. A Mint report on 22 October quoted Prataap Snacks chief executive Amit Kumat as saying the plastic film used for snack wrappers had become 20% costlier in recent weeks and 30-40% more expensive than a year earlier.
With further grammage cuts becoming difficult, manufacturers are also using retailer incentives to influence sales. A national FMCG distributor, speaking anonymously, said Balaji Wafers and Crax parent DFM Foods have cut retailer margins on ₹5 packs by about 10% over the past few months, while offering better incentives on ₹10 and ₹20 packs.
“Companies have trimmed margins on ₹5 pouches by about 10% and shifted that margin to larger packs,” the distributor said. “When a retailer makes significantly more on a ₹10 pack, he naturally stops displaying the ₹5 strips.”
Parle Products' chief marketing officer Mayank Shah, however, cautioned that differential margins could weaken brands' visibility at neighbourhood stores.
“We have not cut margins on smaller packs. We continue to offer the same margin across pack sizes,” Shah said. “There is always a part of your sales that depends on retailer push. If you introduce differential margins, retailers may simply lose interest in your brand.”
Others are redesigning pouches to reduce packaging costs without changing the product's price.
“We are reducing sealing areas from 12 mm to 8 mm and shrinking 200 mm packs down to 190 mm,” Kumat said. “Trimming those dimensions allows us to take out roughly 10% of the cost impact.”
Moving upmarket
Snack makers are also expanding premium offerings, with flavours such as Korean BBQ and chilli lemon, healthier formulations and larger packs aimed at younger consumers and modern retail shoppers.
In the snacks category, products priced at ₹300-350 per kg or more are considered premium, while those below ₹300 per kg fall in the mass-market segment, according to Parle's Shah.
Gopal Snacks has introduced palm-oil-free products, premium namkeens priced at ₹300 per kg and 190-gram standee zipper pouches designed for in-home consumption. These products contribute little to revenue today, but the company expects them to gain scale over the next five years.
“We introduce 12-15 products annually to test market appetite, and scale up what clicks and discontinue what doesn’t,” said Raj Bipinbhai Hadvani, whole-time director and chief executive of Gopal Snacks.
The shift is visible in Gopal's sales mix. ₹5 packs accounted for 80% of its revenue three years ago, but their share has fallen to 60% and is expected to decline by another 5-10% annually, Hadvani said.
Quick commerce is adding to the push towards larger packs, as low-value purchases are difficult to justify against last-mile delivery costs. The channel accounts for upwards of 4% of Parle Products' sales.
“The sweet spot for quick commerce is between ₹30 and ₹80,” Shah said. “Selling ₹5 and ₹10 packs isn’t viable because last-mile delivery costs are prohibitive. Platforms need higher average order values to turn profitable, so they push mid-sized packs, which in turn helps consumers get used to buying them.”
But premiumization may not be a straightforward answer.
“I don’t buy the premiumization story across the board,” said Singhal of The Knowledge Company. “Slapping on a peri-peri or Korean flavour and charging a few rupees more doesn’t mean you’ve discovered something new. Regional players are nimble with spice mixes, but that is temporary. Sustainable volume growth only happens when pricing remains accessible.”