Bain and Company, India the New Delhi-based national unit of the global business consulting firm and the Federation of Indian Chambers of Commerce and Industry (FICCI) the country's apex business organisation launched a report titled 'Processed Food in India: Enablers and Barriers' at the sixth edition of Food World India, the global convention for the food business and industry recently.
It was authored by Nikhil Prasad Ojha, partner, Bain and Company (who leads the firm's strategy practice in India and is also a member of the company's consumer products and retail practice); Rohithari Rajan, principal, Bain and Company, and member, consumer products and retail practice; and Sandeep Lodha, principal, Bain and Company, and member, consumer products and retail practice.
Indian economic growth is powering great shifts in our lifestyle. What we eat and when, how we shop and how we share food are all changing at a fast rate. The packaged food market has witnessed strong annual growth for several years now, and this growth trend is likely to further accelerate in the light of ongoing shifts in the demographic, economic, cultural, regulatory and competitor landscape, Ojha and FICCI's Arbind Prasad said.
Our findings, based on extensive secondary and primary research, suggest that this will indeed be the case. In fact, our bottom-up estimates of growth for each sub-category within the market, in the context of ongoing trends and international examples, suggest that India's packaged foods market could well exceed current growth expectations, they said.
The duo added, This means a great opportunity for companies who serve the Indian consumer, for the agricultural sector, for several ancillary sectors and for investors. Moreover, it is an opportunity with the potential to impact positively on employment, economic growth and quality of life in India. However, for us to realise the full opportunity, we must first clearly identify the biggest enablers that will drive success and the barriers most likely to hinder it. Our task then is to develop and execute action plans that will optimise the first while mitigating the second.
The Indian packaged food market, including confectionery, dairy, baked goods, sauces and household staples such as packaged rice, was worth approximately Rs 1 lakh crore at the end of 2011. With rising incomes, favourable demographics and changing lifestyles, this sector has grown at over 13 per cent per annum over the last few years.
This report outlines the key factors that will shape the growth in India's packaged food industry, and also estimates likely growth over the next few years. It is structured in four parts.
The first section focusses on the drivers and potential barriers to growth. Based on extensive secondary research, four major drivers namely the foundation for growth, demographic shifts, market-player interventions and policy have been identified. Three potential barriers to growth infrastructure, ease of doing business and profitability challenges have also been identified.
The second section provides a snapshot of the recent qualitative research conducted by Bain and Company to understand the shifts and trends in consumer preferences towards packaged foods.
The third section focusses on the likely growth, looking at industry and analysts' estimates and historical trends. These have been compared to Bain's bottom-up, category-level forecasts, which incorporate insights from the first two sections.
Based on these, we argue that conventional forecasts underestimate the growth potential of the packaged food sector because they do not fully capture the way in which different trends and shifts are having a multiplier effect. We also look outward and argue that international examples provide a strong indicator of how this sector is likely to evolve in India.
And, finally, in the fourth section, the key stakeholders in the sector are discussed and what industry participants can do to ensure that this growth potential is achieved is outlined.
Despite problematic infrastructure, India's existing agricultural and food processing output provide a strong foundation for growth in the packaged food industry
Changes in demography, disposable income levels and lifestyle have created a rapidly-growing domestic market for packaged food, with discernible patterns in consumption
These factors result in a multiplier effect, so that the growth potential for the sector is higher than the current industry and analysts' estimates
For companies, the market share can be increased by investing throughout the value chain, targeting young consumers and creating value-added products
Different categories of packaged foods are at different stages of product maturation and will require carefully targeted investment and product development
The report depicts an industry in an exciting period of expansion, with many opportunities for companies and the government to work together. An expanded packaged food market will result in increased choice, quality and hygiene standards for the consumers and improved profitability for companies, the authors said.
They added, If the examples of market leaders are followed, it can also result in improved agricultural standards, better conditions for farmers and reduced wastage.
I. Drivers and barriers to growth
India's size and economic growth has led to much excitement about the potential for growth in new markets. Despite the recent slowdown, the country's per capita GDP is set to rise at 7.4 per cent per annum in the next two decades, and will almost certainly create significantly higher consumption.
With a domestic market of 1.2 billion people, there is clear potential for packaged food purchasing to continue on the trajectory of growth seen in recent years.
Our research identifies four key factors that will drive the development of the packaged food industry over the next two decades:
Driver 1: India's status as a world hub of food production and processing lays the foundation for expansion in packaging food production
India's agricultural strength is due to a unique combination of natural resources, low production costs and a vast skilled labour force. The nation contains the world's second-largest arable mass, with diverse geo-climactic zones and abundant livestock. This natural wealth makes India the global leader in milk production, the second-largest producer of fruit and vegetables and the third-largest producer of fish.
In addition, the Indian food processing industry, essential to packaged foods, is thriving. Currently the fifth-largest sector of India's economy, the industry has reported steady growth over the past few years and shows potential for much expansion, particularly in the export market. The costs of processing and packaging food can be upto 40 per cent lower than it is in parts of Europe which, combined with India's resources of skilled labour, make it an attractive venue for investment.
In and by themselves, these elements may not guarantee growth. However, together they provide the environment needed for the packaged food industry to flourish, a growing momentum to food production and an ecosystem of supply chain and infrastructure.
Driver 2: Demographic change is powering rise in domestic demand
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