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Starving for growth

Jun 24, 2000

With a penetration as low as 6.1%m, the Indian food industry is in its nascent stage. The market has been plagued with lower growth rates that range around 5-6% in volume terms. The lower penetration is due to unawareness among the people about branded food. The premium price as compared to unpacked goods has also contributed to this. In view of the tremendous growth potential of this segment many MNCs as well as domestic players have made an aggressive entry in the sector, betting large amounts of money. The Rs 8 bn malted foods market is segmented into two types - brown and white. While the brown drinks are positioned as energy boosters, the white drinks are positioned as milk substitutes.

The consumption pattern of malted beverages differs according to usage patterns across geographic zones. In the southern and eastern regions white beverages are preferred as substitute for milk and consumed with water due to unavailability of good quality milk. The fact that East Indians have a sweet tooth has helped ‘Horlicks’, which has nutritional value in gaining market share. The southern region prefers more cocoa based beverages which are bitter in taste. Hence brown beverages have done very well in the south accounting for around 60% of the total brown beverages sales.

In the northern and the western India availability of fresh high quality milk is not a problem. Hence malted beverages are used more as taste enhancers and not for their nutritional values. In this market both white and brown drinks are consumed favourably.

The malted food drink industry is dominated by few players. These include brands such as ‘Horlicks, ‘Complan’ and ‘Viva’, which are mainly positioned as white beverages. ‘Boost’, ‘Bournvita’, ‘Milo’ and ‘Maltava’ on the other hand are classified as brown drink. Malted beverages with nutritional positioning control around 70% of the total market and energy drinks (brown beverages) account for the rest. ‘Horlicks’, which is a 110 year old brand has maintained its leadership position in India based on its high degree of consumer loyalty, good communication mix and strategic investment in advertisement. It is right to say for the brand ‘Success comes overnight after years of experience’.

The brand has a very strong presence in all the regions i.e. East, West, South and North. As per the 1999 A&M-ORG-MARG’s annual survey it scores well ahead of its competitors. Following table represents strong brand power of ‘Horlicks’ in all the regions.

East or West Horlicks is the best
Brand West East South North
Horlicks 32.7 51.1 49.1 40.4
Complan 26.8 39.7 30.3 29.6
Bournvita 23.8 25.1 24.1 28.8
* figures represents brand scores

However in the past one year Horlicks’ turf has been facing an invigorated attack from its rivals – ‘Bournvita’ and ‘Milo’. The renewed thrust by these two players might result in higher market share considering their strong brand equity and recall. SBCH will have to continuously invest in brand building to stay ahead of its near competitors.

Notably in the past few years, SBCH’s promotional expenses have remained at a considerably lower level compared to its peers in the industry. The company has been able to achieve an astounding financial growth by maintaining the level of its advertisement cost. Whereas the FMCG majors continue to spend heavily on brand promotion, SBCH’s advertisement expenses as a percentage to total sales declined to 5.4% in FY99 from 5.9% in FY96.

Leading… by miles
Particulars SBCH Cadbury Nestle Britannia
5 years sales CAGR 18.4% 19.2% 11.6% 18.7%
5 years Advtg. exps. CAGR 17.3% 29.1% 26.4% 35.9%

Also it has been able to deliver comparatively higher ROCE and RONW, which is a good indicator of a company’s health, and on this parameters SBCH has outperformed its peers. With the small product portfolios the company has been able to achieve what others could not and proved that what you need is a good product, marketed effectively and sold at the right price.

Impressive return on capital employed
Particulars SBCH Cadbury Nestle Britannia
RONW 37.1% 20.0% 37.9% 29.4%
ROCE 48.7% 36.0% 50.4% 27.6%

All in all, the growth in the malted food industry is dependent on the economic conditions of the country and changing consumption habits of the people from cola based drinks to the healthier and nutritional malted food drinks. With the growing awareness about health products in the minds of consumers, increasing urbanisation, rising standards of living and popularity of convenience foods, the industry is expected to witness strong long-term demand growth potential.

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