Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Processed Food: The heat is on… - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 27, 2001

    Processed Food: The heat is on…

    As per a recent study by Rabo India, Indians spend almost 53 percent on food, probably next only to China. But even though the total Indian food market is estimated to be a whopping Rs 3,500 billion (US$ 75 billion), only about 5 percent of output is processed and consumed in packaged form. Over 90 percent of fruits, vegetables and milk are still consumed fresh. Also, a lot of these items are seasonally available, hence there is no uniformity in quality and prices. This throws up a huge potential for expansion of the food processing industry.

    These numbers have not gone unnoticed by the multinational companies (MNC). An increasing number of them are now focusing on India. Companies like Kellogg’s, Heinz and Sara Lee are some of the examples to begin with. Existing MNC companies like Hindustan Lever and Nestle have identified this sector as their growth drivers in the 21st century.

    A large of their future strategies will hinge on converting a big mass of the Indian consumer, which is low on the value chain. Awareness is high for all basic food items, which form part of the staple diet. Only for snack foods, culinary items and junk food awareness levels are low. Even in the basic foods segment there is dominance of the regional unorganized sector. To some extent this can be attributed to government policies of the past, wherein, many segments were reserved for the small-scale industry.

    Dairy products (milk, yogurts, butter, cheese), culinary foods (instant noodles, ketchups, pasta’s, ready to eat mixes), staple food (branded flour, salt), bottled water, chocolates and confectionary are only a few of the segments which are seeing new products, brands and companies enter. As the markets mature, more companies and products will venture to test the Indian taste buds.

    Category Market size
    (Rs m)
    Major players
    Branded flour 12,000 50% HLL, Pillsbury
    Bakery items 55,000 8% Britannia, Parle, HLL, Nestle
    Culinary products 10 10% Nestle, HLL, Heinz
    Health Beverages 9,100 28.5% Smithkline Beecham, Nestle, Cadbury
    Milk & dairy products 30,000 8% Amul, Britannia, Nestle
    Chocolates &
    6,000 12% Cadbury, Nestle

    The urban consumers have already seen their fair share of this new products and brands, but it is the rural pie, which these MNC’s are vying for. India is seeing a dramatic shift towards prosperity in rural households. As per National Council for Applied Economic Research (NCAER) estimates the lowest income class will shrink from more than 60 percent in fiscal year 1995 to 20 percent in fiscal year 2007. The higher income classes will more than double and hence rural market for fast moving consumer goods (FMCGs) will boom. Thus the sector is witnessing large-scale advertising spends and focus on improving the distribution muscle.

    (figures in Rs m) Total size % Rural size
    Category (urban + rural) growth ** 2006-07*
    Tea 65,000 11.0% 83,370
    Health beverages 9,080 28.5% 21,100
    Packaged biscuits 25,000 6.8% 18,370
    * projections
    ** annual growth rates compounded for last five years
    Source: Business Intelligence Unit and NCAER

    It is not only the food product companies that are eyeing the Indian palate. Retail food chains like McDonald’s have already taken the Indians’ by storm. The chain has 26 restaurants in the country currently. Seeing the success it has had, the company is planning to open 42 new outlets across India backed by an investment plan of Rs 2 billion (US$ 43 million). And this is only the beginning.

    According to estimates, food retail chains are likely to grow by 1100 percent, from the current Rs 5 billion (US$ 108 million) to Rs 60 billion (US$ 1.2 billion) by 2005. This is too big an opportunity to let go. FMCG major, Hindustan Lever and the Tata Group are busy working out details of getting into the food retail business.

    Income Groups FY95 FY2002 FY2007
    Rs 106,000 1.6% 3.8% 5.6%
    Rs 77,001-106,000 2.7% 4.7% 5.8%
    Rs 50,000-77,000 8.3% 13.0% 22.4%
    Rs 25,001-50,000 26.0% 41.1% 44.6%
    Less than Rs 25,000 61.4% 37.4% 20.2%

    With changes in eating habits and the increased affordability of the growing Indian population, the market for branded foods is expected to grow at a brisk pace. It is likely that companies will opt for consolidation to generate growth. Cash rich companies will buy out well-known brands to gain market leadership. Pepsi’s Frito Lay bought over market leader ‘Uncle Chipps’ to consolidate. Recently, Nestle bought over Excelsia Foods from Dabur. The most likely company to be up for grabs is Smithkline Beecham’s malted beverage business in India, given the recent worldwide merger of Glaxo and Smithkline’s pharmaceutical operations. This trend will reduce fragmentation, improving the pricing environment.

    Investments in cold-storage chains are also likely to see an upsurge in ice cream and processed dairy products including cheese, butter and yogurt demand. Hindustan Lever has already earmarked Rs 2 billion (US$ 43 million) to beef up its cold storage chain in the next two years.

    With the US$ 75 billion Indian food processing industry set to double by 2005, the sun is surely shining on this sector. However, drought situation in rural India may upset the apple cart in the short term.



    Equitymaster requests your view! Post a comment on "Processed Food: The heat is on…". Click here!


    More Views on News

    GSK Consumer: On the Recovery Path (Quarterly Results Update - Detailed)

    Jun 20, 2017

    While GSK consumer reported muted revenue growth, volumes are seen to be recovering.

    ITC: Demonetisation woes pull down business growth (Quarterly Results Update - Detailed)

    Feb 8, 2017

    ITC Ltd has announced third quarter results of the financial year 2016-2017 (3QFY17). The company has reported 4.7% YoY and 5.7% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

    ITC: A Decent Quarter Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Dec 7, 2016

    ITC has announced second quarter results of the financial year 2016-2017 (2QFY17). The company has reported 8% YoY and 10.5% YoY growth in revenues and net profits respectively.

    ITC: Numbers Go Nowhere in FY16... (Quarterly Results Update - Detailed)

    Jun 8, 2016

    ITC declared results for the quarter and year ended March 2016. During the year, the company's net revenues and profits rise by 1% YoY and 3% YoY respectively.

    GSK Consumer: A Forgetful Year (Quarterly Results Update - Detailed)

    Jun 1, 2016

    GSK Consumer Healthcare announced its results for the quarter and year ended March 2016. During the quarter, sales and profit came in lower by 9% YoY and 8% YoY respectively.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms