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Innovation and marketing will nourish growth - Views on News from Equitymaster
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  • Dec 18, 1999

    Innovation and marketing will nourish growth

    India maybe a poor country, with more than 45 percent of Indians having no idea where their next meal will come from. But that has not constrained the Indian food market from growing manifold over the years. In fact, India is already the second largest food producer in the world, and production is estimated to double in the next decade.

    Without doubt, the biscuit segment takes the cake as far as sheer market size is concerned. With a US$ 1 billion market, it is the largest component of the food segment. Volumes are large (about 1.1 million packets), which explains why food majors - Britannia and Parle have targeted this segment for special attention. Britannia (Tiger, Marie, Bourbon) and Parle (Parle G, Monaco, Krackjack) India's traditional biscuit giants dominate this segment with a combined market share of close to 40 percent. The unorganised segment accounts for over 50 percent share and is largely glucose-based, with pricing and regional focus playing an important role.

    (As on FY99)

    Bread with a market size of US$ 279 million comes next, and like biscuits it is also dominated by the unorganised segment, with organised players (Britannia, Modern) playing a marginal role. On the other hand, dairy products (cheese, butter, whitener), a US$ 190.7 million market, has long been the preserve of National Dairy Development Board, and its brand 'Amul' has become generic to butter and cheese in the country. Although Britannia has tried, it has failed to loosen Amul's stranglehold on this segment.

    Another important component of the food segment, liquid milk, holds a lot of promise given the fact that the Indian market is one of the largest with production touching 70 million litres. This segment is being serviced mainly by Amul. As life styles change, this segment will unlock its potential, which explains why companies like Britannia (Zip Sip) have drawn out elaborate plans to corner market share.

    Mineral water is a segment that can match milk as far as potential is concerned. Currently, the US$ 111.6 million mineral water segment is dominated by Parle's Bisleri and Bailey. Estimates reveal that these two brands account for around 20 percent of the market, while the rest of the market is very fragmented with about 100 manufacturers. Growth rates in this segment over the past few years averages 50 percent. This coupled with the fact that margins in this business are higher than in mass-market biscuits and milk, serves as an added allure to companies like Britannia and Pepsi.

    The last couple of years have witnessed a new segment on the horizon in the form of Ethnic Snacks. As in mineral water, the attraction here is the huge potential. The market size is approximately US$ 349 billion (300,000 tonnes) and is growing at close to 10 percent per annum. This market is characterized by low margins, with companies resorting to third-party manufacture.

    While the various segments of the food market may seem diverse, growth will be dictated by some common parameters. The most crucial is and will remain, fresh launches. Companies will have to keep on introducing new products just to sustain market share. This is substantiated by the fact that last year witnessed over 20 new products across all segments. Another area that will need beefing up is distribution. Companies will have to expand their reach across the breadth and width of the country, particularly in the rural areas. Innovative advertisement campaigns is another area companies will need to brush up. Britannia's Cricket World Cup campaign 'Britannia Khao World Cup Jao' earned them rave reviews, not to mention an exponential growth in sales.

    As the going gets tougher, only the tough will get going. Increasing competition, lower margins and relentless pressure from the unorganised segment, will give acknowledged brands more than a little food for thought.



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