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.
||Britannia, Parle, HLL, Nestle
||Nestle, HLL, Heinz
||Smithkline Beecham, Nestle, Cadbury
|Milk & dairy products
||Amul, Britannia, 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)
||(urban + rural)
** 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.
|Less than Rs 25,000
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.
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