| Supply |
Abundant supply of processed foods. Packaged products such as tea, coffee and snack food are largely available in the unorganized market. Tobacco segment enjoys high penetration even in rural areas. Supply is higher because of bidis that are manufactured by the unorganized sector.
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| Demand |
Processed food demand is growing at 10%-15% per annum. Rising contribution of women to the working force and growing nuclear families has led to higher demand for convenience foods, especially in urban areas. Tobacco demand is largely inelastic. Demand growth is pegged at 4%-6% for cigarettes.
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| Barriers to entry |
Huge investments in promoting brands and setting up distribution networks. Punitive taxation policies of government in case of tobacco.
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| Bargaining power of suppliers |
Suppliers being small and fragmented have limited bargaining power. Only some companies like ITC source their agri-inputs internally thereby reducing their dependence on suppliers. Most tobacco companies have integrated backwards and have their own supply chains. Therefore, the bargaining power of suppliers is not high.
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| Bargaining power of customers |
In packaged foods, the bargaining power of customers is restricted to the mass or the lower end of the price segment which is highly competitive. As tobacco consumption is more or less a habit, the bargaining power of consumers is only to the extent of choice of the brand.
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| Competition |
Segments such as biscuits, noodles and snack foods are highly competitive. In a bid to capture market share, companies offer discounts and freebies. Recently inflationary environment has led to increased demand for private label brands that are available at a discount. In case of tobacco, branded cigarettes, bidis and contraband compete with each other.
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The food industry is expected to grow to $ 300 bn with the market size of processed foods reaching $ 150 bn by 2015 (Technopak). Demand drivers such as urbanization, increase in the number of nuclear families and working women, higher disposable income and the changing consumption pattern are likely to boost demand for processed foods. Higher penetration of organized retail from the current 5% to 30% of FMCG sales by 2020 will aid the growth. A number of categories which are highly dependent on organized retail-like frozen food products - are expected to witness significant growth in future.
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A large chunk 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 whereas it is low in the case of snacks and culinary products. The segments, which are dominated by the unorganised sector, have the potential to grow faster in the years to come.
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A large chunk of the Indian consumer is low on the value chain mainly in snacks and culinary products. These segments, which are dominated by the unorganized sector, have the potential to grow faster in the years to come. The FMCG sector is witnessing large-scale ad spends and improving distribution network. New and existing players like Heinz, Marico, Conagra, Pepsi, ITC, Dabur, Britannia, Danone, Kraft and Amul are expanding their product folio in the domestic market. At the same time, Indian food brands such as Bikanervale Foods, MTR's ready-to-eat foods and ITC's Kitchens of India are making their presence in the overseas markets.
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Presence of numerous segments has diversified the processed food offerings. For instance, Dabur deals in beverages and culinary products, HUL offers beverages, staples, dairy and snack foods, Britannia is present in bakery products, ITC is present in staples and snack foods & Nestle has dairy, beverages and snack foods in its product basket. Regional players like Haldiram and MTR are focused on traditional snack and food mixes.
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The growth in the tobacco industry has been impacted by high taxation and burgeoning illegal trade that accounts for 16% of the total industry size. Higher duties result in price hikes affecting volume growth of domestic companies due to competition from the contraband and bidi segments. Rationalization of taxes is likely to provide a level playing field to the industry.
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The Indian government has approved funds for establishing 15 mega food parks across the country. The Union budget 2011-12 has increased allocation by $ 45 m to $ 135 m to the Food Processing Ministry. The government of India had also announced Vision 2015, which lays focus on enhancing the competitiveness of food processing industry in both domestic as well as international markets. The Vision 2015 provides for enhancing the level of processing of perishable to 20%, enhancing value addition to 35% and increasing the share in global food trade from 1.5% to 3%, by 2015.
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