The Indian bakery market is still in a nascent stage. In a country where average per capita income hovers around US$ 450 per annum, bakery items are not very high on the list of priorities for the masses. Low margins, and a high level of fragmentation characterize the bakery segment. Awareness is nearly 100%, however, penetration is lower in rural areas at 15-20% and at 60% in urban areas. This is mainly because these products are consumed as snacks, and do not form part of the main course meal.

However, over the past few years’ bakery products have shown a marked improvement in volumes and customer base. But this growth has mainly come from bread and biscuits segment. Infact one can safely say that bread and biscuits constitute around 75% of the Rs 70 bn Indian bakery market.

Bread and biscuits have grown largely because these products are characterized by the huge presence of unorganized sector (60%), as they were reserved for the small-scale industry earlier. Also, bread to some extent is consumed as a food supplement in the urban areas.

Other bakery products like cakes and pastries are also on the growth mode, but the growth rates leave much to be desired. These products do not yet have a mass appeal and are basically centred on the urban areas. In these two categories also local manufacturers hold a sizeable chunk of the market.

Over the last few years, branded companies like Parle and Britannia have upped their ante and introduced new products with slick packaging in order to grow the market. These companies’ prospects were also buoyed post deregulation of the biscuit industry in April 1997. Before that, the biscuit segment was reserved for the small-scale industries.

Realising the mental block against premium bakery products these companies employed a two-pronged strategy, especially in biscuits. To gain volumes these companies continued to back glucose biscuits aimed at the mass, and for margins they continued to stack up their portfolios with new brands and variants. As a result, the unorganised segment that dominated over 60% of the biscuit market in 1995-96, now sees its share shrunk to around 50% levels.

The biscuit market is now estimated to be 1.1 m tonnes, valued at over 35 bn. Britannia and Parle control 38% and 29% respectively of the organised biscuits market. Volumes, brand loyalty and strong distribution networks drive this market, which is growing at 6-7% annually.

On the other hand, the 1.4 m tonnes bread market valued at Rs 11 bn, is dominated by local manufacturers (80%). Market growth is 3-4%, but it is much higher for organised sector (brands). Brands like Modern and Britannia are major players in the bread market (10% and 5% market share respectively), and together they account for 90% of the organised bread market.

With Hindustan Lever’s acquisition of Modern Foods, this segment is likely to see increased market penetration and rivalry in the years to come. HLL plans to enter the bakery segment in a big way and this should be a key driver for the industry’s growth.

According to estimates, the bakery market is poised to touch Rs 100 bn by the year 2005 (a CAGR growth of 9.3% from current levels). However, with the current slowdown faced by the FMCG sector as whole, the growth rates have hit a speed breaker. It is only when the recent good monsoons give impetus to demand, the segment would see its fortunes reviving. But in the near term such relief looks unlikely.

In the longer term the bakery segment is likely to see competition getting even more intense with new entrants especially MNC’s. Marketing wars would get even more cut throat as players try to convert consumers of unbranded products to branded products. The urban areas are likely to continue seeing new high end products in all categories of the bakery industry. But the road for this segment’s growth would be slow and steady.