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The Indian food story - Views on News from Equitymaster
 
 
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  • Sep 12, 2000

    The Indian food story

    The potential Indian consumer goods market is second in size only to Chinaís. The country with a population of over 1 billion offers huge growth potential in the food sector. High fragmentation, loose and unbranded products and dominance of unorganized sector characterized the sector.

    It was statistics such as these, which attracted foreign companies and investors to this sector. Eyeing this vast potential, the sector has seen a flurry of entrants from the organised sector leading to emergence of brands even for basic foods like flour (atta) and salt. Interest of MNCís in fruit and vegetable processing and grain/cereal-based products (pasta, cereal food and bakery) is on the rise.

    But on hindsight, these companies realised that all is not as rosy as it seems. For one, the Indian consumer market is not secular in nature because of the huge population and wide disparity in incomes. Though, there is an elite class of about 1.5 m households that equates to consumers in the developed world, majority of Indian households consume mainly low ticket items. So in effect their potential consumers were only around 1.5-2 million households and not 1 billion, as these companies had thought.

    A big mass of the Indian consumer 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 etc. 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.

    But on the positive side, the average Indianís per capita income is on the rise. This coupled with rising levels of literacy is bringing about a change in lifestyles. As the traditional social set up of joint families is breaking up, giving rise to nuclear families and working women, homemakers are left with lesser time to prepare everything thus giving an impetus to branded and instant foods. The current Indian market is very much like the U.S. in the 60ís when the yuppie culture emerged.

    It is estimated that the US$ 70 bn Indian food processing industry is set to double by 2005. Companies like HLL, Nestle etc. have identified this sector as their growth drivers in the 21st century. The sector is witnessing large-scale ad spends and focus on improving the distribution muscle to woo the Indian palette. In the last 2-3 years urban cities have seen a rise in the number of brands available for various processed food items.

    The urbanites seem to have accepted them with little resistance, but to really succeed the companies would have to attract the towns and village consumers. Efforts are already on to do so. HLL, Nestle, Cadbury, Reckitt and Colman, Marico, Sara Lee; all are beefing up their distribution in smaller towns. But unlike urban cities (which are invariably stretched out for time) it will be very difficult for these companies to break the stranglehold of the friendly neighborhood ĎAtta chakkií (flour mill) in smaller towns.

     

     

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