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Impact of inflation on F&B packaging and branding
Friday, 27 December, 2013, 08 : 00 AM [IST]
Sethunath P
In an election year the word inflation spells trouble for the government. To a common man it always spelt trouble. What about brands and how they are affected due to the mounting inflation. As per the recent news in leading financial newspaper, the overall FMCG growth numbers for H1 2013 came down to 11%, from last year’s 17%. The impact on modern trade, which contributes about 7% of the total FMCG market, saw growth rate come down to 11% during H1 2013, from 34% in the same period last year. The numbers have seen only a marginal improvement owing to the festival season. Modern trade has been growing over 20% over the last few years.

Specifically brands related to F&B show a bit different trend.

Average in 'food articles'
According to another study India’s average wholesale price inflation in “food articles” was 12.24% in the first half of FY14, far higher than the inflation rate of 4.65% for “food products,” a paradox because the latter additionally includes the margins of food processing units.

The obvious reason for this is the subdued prices of edible oils and sugar, which have a combined weightage of 48% in the manufactured food products basket. But what has kept processed food prices in check is also the increasing trend of processors directly sourcing raw food items from the farmer, which not only helps to eliminate the middleman but also reduce wastages.

Industry leaders such as HUL and ITC are reworking on their strategy to retain both volume & margins. Competition in the market is giving a tough challenge for even the biggest names in the market. Almost every category of product is witnessing entry of new players—foreign as well as regional.

This has forced companies to raise their advertising and promotions spend to maintain visibility of their products. Most brand and category leaders have been struggling to maintain their market share. Creating product differentiation, finding newer categories, building new consumer bases and constant innovation has become a norm today.

A recent report in media mentioned about Rs 44,000 crore worth of food wasted in the country, around 30% being fruits & vegetables. And our inflation is at all time high with FMCG majors facing margin pressure & lack of sales in the market.

Can packaging & branding play a critical role in this juncture? What do brands need to do in a tough market space? Inflation of basic food products is cutting down disposable income of the consumers and they are choosy on what they buy. How to win here?

a) Create new product segment – Increase your market share through increasing the pie of your business. Success of Amul is based on organising category which normal Indians used to use in their daily life. They have used packaging & built brands to make sure butter to butter milk are available to the consumer in the neighborhood store. Outthinking helped a co-operative movement to keep up with the changing market through creating of newer products.

b) Create the right product size – India is not like Western countries where we like to buy large packs. It’s important for us to go deep to the social & demographics trends. While refrigeration at homes is growing, “freshness” is still about buying. With more and more nuclear families it is important to find the right sizes. We all know the famous story on “sachets” and how it redefined the shampoo usage in the country. Today the F&B segment is also following the trend and need to create for one time, daily, weekly and monthly sizes.
c) Connect with the consumers – We as a country have distinctive culture and very localised food taste. Region, state, caste, religion, family – there are food menus available for each category. It is important for brand to bring this flavours & fragrance to the consumers. Today lists of SMEs are trying to capture this spirit through “pickles” category. When Pepsi launched Nimbooz it was branding an Indian taste to the consumers. But to the market size of ours do we have enough flavours & variants?

d) Change the rule – Brand needs to communicate more personally with the evolved consumers. In recent times, Maggi and Kurkure have taken few steps. But learning from international market we need to use packaging more creatively as a personalised communication tool. Brand needs to tap on the concept of “It’s for me” philosophy.

Emerging trends
We all should look at other new emerging trends in the recent times – There is significance growth in modern trade, and E-commerce is changing several standard rules. While traditional retail & modern retail will co-exist, e-commerce will find more traction in the coming days. Brands are going to reinvent with new pack formats, redefined supply chain, personalised communication and hopefully better margins for brand-owners and increased saving for consumers.

All of this opens up huge need for branding and packaging since these two are one of the most important elements in taking processed food items to the consumer. Brand owners and early thinkers who will use the current situations to innovate & change the rule of the game will merge victorious in the next few years.

There is significant growth expected in the packaging of food products and this is not only a commercial need but a significant social revolution.

(The writer is director, Alia Group)
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