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Growth of beverage – one of the most dynamic sectors
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Sunday, 01 March, 2020, 08 : 00 AM [IST]
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Siddhartha Singha
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As one of the fastest-growing economy, India’s urban population percentage has gone up from 30.8 % to 34.5% in the last decade. Besides urban sector, the vast rural market of the country is also growing rapidly. The rural area spread over 6 lakh villages accounts for 40% of FMCG market in India. This vibrant growth reflects in food processing and retail sector of the country as well with a whopping 2,466 thousand crore market value.
Beverage industry is one of the most dynamic processed food sectors and has undergone a seachange in recent times. Large national and multinational food companies, startups, unorganised food sector plus some unconventional manufacturers like pharmaceuticals companies have introduced numerous alcoholic and non-alcoholic beverages into the Indian market.
Non-alcoholic beverage category is comprised of soft drink and water bottling and canning; formulated powder and liquid drinks from miscellaneous sources; bottling, canning and boxing of fruit and vegetables juices and their powders; dairy-based beverages; coffee and tea industry. The total non-alcoholic beverage market in India has touched Rs 53,000 crore INR in 2019.
On the other hand, alcoholic beverage categories which include distilled spirits, wine and brewing have an estimated market size of Rs 2,100 crore and is expected to grow at 7.4 CAGR for the next five years.
The non-alcoholic beverage market in the country is dominated by bottled water and carbonated soft drinks (CSDs) categories with a market share of 36% and 24% respectively. Bottled water market will continue to grow at 15% CAGR as the ratio of population with access to clean water is decreasing and simultaneously awareness about the quality of water is increasing.
Major challenges
Over 5,000 registered bottlers are bustling in the sector. However, a sizeable number of unregistered bottlers supplying substandard product and depleting water-table are the two major challenges for bottled water market. The other major beverage category i.e., CSDs is showing a relatively slow growth rate of 3% CAGR. Though per capita consumption of CSDs is expected to grow from 44 bottles in 2016 to 80 bottles by 2021. In spite of the decent growth rate even market leaders like Coca-Cola and PepsiCo are diversifying into other beverages and food products to stay competitive.
According to current absolute sales volume, nutritionally rich beverages like fruit and vegetables juices, dairy-based beverages, and formulated powder and liquid drinks from miscellaneous sources share smaller chunks of the market but exciting growth of these products could be seen in the last five years. With an array of products, value of this market segment in the country has been estimated to be Rs 13,541 crore by 2020. There is a great demand for healthy beverage options among young Indians and even current government is pushing for manufacturing of fruit-based drinks.
Major players
Dabur India, PepsiCo India, Coca-Cola India, ITC Limited, Surya Food and Agro Ltd, Manpasand Beverages, Hector Beverages, Del Monte, Mother Dairy Fruit & Vegetable Pvt. Ltd and Parle Agro are the major players in the Rs 2,000 crore fruit-drink market. Other beverage category, the dairy-based beverage is the fastest-growing segment with 30% CAGR. Dairy-based products are mainly flavoured milk, buttermilk, lassi and milkshake products where flavoured milk alone covers 60% of the sub-segment. In this sub-segment, both old major players like Nestle, Amul and Britannia as well as new entrants like ITC and number of smaller startups are gearing up with series of new products.
Along with fruit-based and dairy-based products, beverages composed of soy and malt derivatives are growing decently. Especially, among urban population per capita consumption of soy drink is going upward. Soy milk helps in weight management, strengthening of bones, and preventing some hormonal disorders. These benefits are attracting the millennials towards the healthy beverage.
Hershey India Pvt. Ltd; Life Health Foods (India) Pvt. Ltd; Rakyan Beverages Pvt. Ltd; Dabur India Ltd; Tilda Hain Celestial; contribute primarily toward Rs 2,700 crore soy drink market. A parallel category of product i.e., malt-based beverages enjoy Rs 8,350 crore market in the country but high sugar content and competition from wholesome nutritional products are affecting their growth rates. GlaxoSmithKline Plc and Kraft Heinz Co, the leading malt-based drinks manufacturers in the country are divesting their malt drinks as part of business restructuring. Whereas two multinationals, Coca-Cola and Heineken have entered the Indian market and expect to grow at 17%.
Tea and coffee are the slowest-growing beverage section in the country. In spite of being second- largest producer of tea, increased cost of production with deteriorating quality are two main constraints for the tea producers in India. Tea manufacturers like Tata Tea and Brooke Bond are inclining towards products like blended tea leaves with spices and medicinal plants, green and olong tea to regain national and international market. On the other hand, Rs 1,000 crore coffee market is believed to be just one fifth of the tea market in the country.
Nevertheless, rapid expansion of retail chains of ready-to-drink (RTD) products especially entry of international brands like Nescafé, Cafe Coffee Day and Tata-Starbucks would probably cause significant expansion of the coffee market. The café concept of mixing snacking with lounge ambience is going to be one of the key driving force for both tea and coffee markets in the country.
Alcoholic beverage market in India is growing at a healthy rate as the per capita consumption of alcohol is rising in the urban centres. Two major trends in alcoholic drinks market are popularity of low alcohol content beverages and multiplication of microbreweries. Low alcohol beverages are a good option for younger population particularly for ladies to start alcoholic drinks. Most of the manufacturers have realised the fact and investing heavily on the segment. Another phenomenon is increasing popularity of microbreweries and craft beers in upmarket areas that is creating a new alcoholic drink segment.
Major driving factors
The diverse beverage market in India has four major driving factors- (1) Beverages with healthy perception is becoming preferred drink for millennials. So in the next few years more and more “natural” and wholesome beverages are expected to hit the market. (2) Broadening of beverage sales channels due to multiplication of restaurants and eateries. These eateries are growing at 18-20% CAGR in the country and expanding potential of the consumption of RTD products. Considerable penetration of such eating places and retail units could be seen even in Tier II and Tier III cities.
(3) Packaging innovation is also a major influencing factor for beverage categories. Safe, convenient and attractive packaging is one of the main criteria to select a beverage product. For example, new products like fruit juice and real fruit chunk blend from Coca-Cola demands correct packaging systems. Packaging companies like TeraPack, Krones India Pvt. Ltd and Chemco are working for the better automation of packaging/filling equipment and making the packaging systems more sustainable and green.
(4) Finally the last driving force for beverage market is probably the nationwide startup movement. Ventures like Chai Point, Rakyan Beverages Pvt. Ltd and Capricon are causing expansion of beverage market through continuous innovation in both technology and marketing side. Steady economic growth, emergence of conscious consumer population, and innovation from bottlers and allied sector will fuel double-digit growth of powdered and liquid beverages in the country for the next five years.
(The author is Assistant Professor, Centre for Rural Technology, Indian Institute of Technology, Guwahati. He can be contacted at siddharthafp@iitg.ac.in)
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