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Indian Packaged Food Industry – A Complex Ball Game
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Sunday, 16 September, 2018, 08 : 00 AM [IST]
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Meenakshi Haran
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The food industry in India is undoubtedly one of the fastest growing in the world, given the country’s favourable economic and demographic prospects. However, increasing market disruption and fragmentation owing to the presence of a multitude of local and international players has made the market fiercely competitive. As a result, manufacturers find themselves constantly battling each other to grab consumer attention.
Furthermore, the unique nature of business in India brings in additional complexities such as a multi-level distribution channel and antiquated infrastructure, leaving manufacturers to navigate the complex Indian terrain while attempting to resolve intricate issues such as sustainability and resource conservation.
Consumers spending and growth
Rising urbanisation, long working hours and improving income levels have spurred Indians to spend more on packaged foods, a stark departure from the spending habits of Indian mid-lifers and baby boomers. The FICCI’s (Federation of Indian Chambers of Commerce & Industries) statistics on the Indian food & beverage industry identified that food accounted for 50% in an Indian’s consumption expenditure, suggesting a massive growth potential for food manufacturers. And yet growth is sporadic and not all manufacturers manage to capitalise on the market potential.
The multiple tastes of India
There is no doubt Indians love traditional food and flavours. A recent GlobalData India consumer survey substantiated this with 62% of respondents stating that they always choose familiar and traditional flavours when making food purchases.
However, India is a land of diverse ethnicity and numerous food cultures and local companies are leveraging their knowledge of native tastes and cuisines to cash in on the growing popularity of packaged foods. This preference for traditional foods is predominantly evident in the Indian savoury snacks sector where the ethnic/traditional snacks market accounted for 48.7% share of the total value sales in 2016, allowing Indian players such as Haldiram’s, Balaji Foods, MTR Foods and Bikanervala to lead the market.
In an effort to tackle the strong competition from domestic contenders and appeal to India’s broad regional taste preferences, international players are attempting to localise their products. For instance, Nestle expanded its Maggi noodles offering with the ‘Masalas of India’ line comprising Bengal Jhaal, Amritsari Achari, Super Chennai Masala and Mumbaiya Chatak variants; while the recently launched regional flavours from PepsiCo’s Kurkure include South Tangy Twist, Chiwda Mix for the West, Punjabi Chatka and Butter Masti for north. Despite the efforts, it remains to be seen if international players can lure Indian consumers away from their favourite desi brands.
Urban-rural
syndrome – price
While the improving Indian economy has contributed to rising income levels, India’s urban middle income population is relatively small when compared to other developing markets such as China, suggesting a large urban mass consumer population. Coupled with a rural population of 66.9%, product pricing is a significant factor influencing purchase decisions, substantiated in a recent GlobalData, India Consumer Survey - where 76% of respondents stated that price played an important role in choosing foods to snack on. Therefore, price remains a major barrier for growth, especially since large multinational food corporations also face an onslaught from local brands such as Patanjali, which flood the market with a wide range of low-priced products.
Furthermore, unlike Western counterparts, India’s large mass consumers prefer smaller packs over bulk packs, leaving food companies with little choice but to add economy packs to their original products. For instance, PepsiCo India’s Kurkure brand recently expanded its pack formats to include a wide range of price points from Rs 3 and Rs 5 to Rs 160 and over.
The innovation conundrum
While a large number of Indian consumers are price-sensitive, they are willing to experiment and do seek to try new food products. However, Indian consumers are not quick to adapt to global food trends and often desire one-of-a-kind, local innovations. The withdrawal of Pepsi India’s Aliva baked crackers, Parle’s Smart Chips and Marico’s Saffola Zest, stand testimony to consumers’ resistance for products introduced ahead of time.
As a result, innovations in the packaged food industry are often limited to creating new alternatives to existing products. To strike a balance and gain local positioning, global food players are setting up production units in India. PepsiCo India announced that it would start manufacturing its popular nacho chips brand, Doritos, in India.
Furthermore, the Food Safety and Standards Authority of India’s (FSSAI) regulations to simplify product approvals is expected to step up new product development in India’s food industry.
The infrastructure
challenge
The highly fragmented Indian market and its multiple distribution channels, present a challenge for large-scale organised distribution systems. The market is highly dominated by traditional retail formats consisting of neighbourhood shops, making control of distribution, a challenging aspect for manufacturers. These local outlets are often ill-equipped to retail chilled and frozen foods, given that they endure intermittent power shortages, vital to ensure product quality and food safety. These traditional outlets also struggle to provide visibility to brands, owing to their poor infrastructure.
Unorganised distribution channels continue to account for a majority of food sales in India, despite the rise of organised retail channels in recent years. The Indian government’s decision to allow 100% FDI in food retail, for products manufactured in India, is likely to help international brands gain wider visibility.
Sustainability in supply chain
The complex Indian business environment with its opaque supply chain owing to the presence of a large number of unorganised players, makes traceability a challenge for manufacturers. Given the growing emphasis on resource conservation, coupled with India’s GHG (greenhouse gas) emission targets set by the Paris Accord, there is a need to design close looped supply chains and improve manufacturing efficiencies.
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