Food industry Analysis

(1)

(2)

(3)

(4)

Overall Bargaining Power of Suppliers - Low



Switching costs - Low



Differentiation of inputs - Low



Threat of forward integration - High



Supplier concentration – High

(5)



Overall Bargaining Power of Buyers: High



The strength of buying power that firms in this

industry face from their customers depends on:

buyers’ price sensitivity and relative

bargaining power



Buyer concentration - High



Buyer Volume - Low



Switching cost - Low



Brand Loyalty - Moderate

(6)

Overall Threat of Substitutes- High



Price- performance-differentiation - Low

(7)



Overall Threat of New Entrants – Medium



Brand Loyalty: Quite Strong



Access to Distribution - Tough



Proprietary product differentiation – Low



Access to necessary inputs: Tough

(8)



Overall Industry Degree of Rivalry – High



Market Growth - Moderate



Brand identity – Strong



Switching Cost for Customers - Low



Degree of Differentiation - Low



Scope of Competition – High (Global and

local)

(9)



The Food and Beverages Industry if highly

competitive and moderately attractive and

profitable industry



Well established players are relatively in a

comfortable position while new and small players

would find it difficult to make it big



Suppliers and Buyers are in a low and high

bargaining position



Rivalry is high laying emphasis on marketing and

advertising, and to develop brand identity, due to

low product differentiation

(10)



Entry and exit barriers are moderate and company which

can make large investments could try and enter the

industry e.g. ITC



Threat of global competitors and unorganized players



Key is developing SCM and distribution and maintaining

good relations with suppliers and buyers



It is also essential for players in this industry to be attentive

to changing consumer needs



It also becomes necessary to tap newer markets like rural

(11)

(12)

2012 Top 5 threats to profit margins 2011 Top 5 threats to profit margins

Cost of inputs or merchandise Cost of inputs or merchandise Discounting and other sales

incentives Discounting and other sales incentives Decreased sales volumes Decreased sales volumes

Regulatory Compliance Administrative and marketing costs Inventory carrying costs Regulatory Compliance

(13)

Top Growth Barriers in 2012 Top Growth Barriers in 2011

Pricing Pressures Pricing Pressures

Volatile commodity/input prices Volatile commodity/input prices Lack of Customer Demand Labor Costs

Labor Costs Lack of Customer Demand

Energy Prices Energy Prices

Lack of qualified workforce Regulatory and Legislative pressures

Regulatory and Legislative

pressures Inflation

Inflation Lack of qualified workforce

(14)

Convenience Premiumization More-out-of-home consumption Choice/Selection Freshness Shopping Experience

(15)

Strength

s

1. Foreign food companies continue to target the Indian market

2. India is the world’s second largest milk producer with a developed and high-value dairy sector

3. India’s abundance of

natural agricultural resources makes the market attractive to investors

4. India has the second largest population in the world, and rising domestic demand is a major growth driver.

We

aknes

s

1. The processed food industry in India is less developed

compared to other countries due to logistical and

distribution problems

2. The country’s agricultural industry suffers from a lack of investment and dependency on erratic climatic conditions 3. Specific state-by-state

legislation governing aspects of high-value business hinders nationwide business strategies1

(16)

Oppo

rtu

nities

1. The government is actively seeking investment in the food processing and agribusiness industries

2. Rising disposable incomes and increasing urbanization mean higher-value processed foods should experience strong growth rates

3. The immense size of India’s population and landmass

ensure that market maturity is a distant prospect

4. Premiumization

Threats

1. Logistical problems, underdeveloped service networks and poor

infrastructure hinder

development in fresh food industries, such as dairy

2. The division between the urban rich and the rural poor is as great as ever, meaning

food manufacturers do not have access to the entire population

3. Elevated commodity costs are a threat to food processors

(17)



The Ministry of Food Processing, Government of

India has defined the following segments within the

Food Processing industry:



Dairy, fruits and vegetable processing



Grain processing



Meat and poultry processing



Fisheries



Consumer foods including packaged foods,

(18)

(19)

 The Indian food processing at $135 billion and is estimated to

grow at a CAGR of 10% to reach $200 billion by 2015

 The industry has huge growth potential: Of the country total food

and agricultural produce only 2% is processed

 The Industry contributed to 7% of the country’s GDP and it

employees 13 million people directly

 Value addition of food products is expected to grow from 8% to

35% by the end of 2025

 The fruit and vegetable processing which is at a 2% growth rate

is expected to reach 25% growth rate by 2025

 The highest growth is in the dairy processing sector where 37% of

(20)

 Processed foods are primarily derived from agricultural commodities,

which often incur multiple taxes at various stages. This multiple taxation has a cascading effect on prices and a barrier to the free flow of

materials from the farm to the factory and ultimately to the consumers

 Diet food and nutraceuticals are the latest fad are available for every

patient today, be it hypertension, diabetes, obesity, or even weight reduction

 Motivated by a desire for maximum indulgence coupled with a wish for

calorie control and health benefits, consumers are increasingly choosing sugar-free and sugar-reduced products

 Packaging of food products has become important in order to ensure

safety and hygiene and to eliminate the possibility of adulteration.

However, packaging industry is yet to achieve international standards in the country

(21)

 India is one of the largest countries in the world, with a growing

population of 1.2 billion people

 India’s GDP was US$1,843 billion in 2011 and is forecast to rise to

US$2,013 billion in 2012

 GDP is expected to continue growing at rates around 7–8 percent

per annum for the next few years

 There has been a discernible increase in purchasing power in many

parts of the country and rising affluence in many urban pockets

 However, income distribution in India remains uneven between a

(22)

 Almost a quarter of the population is living on less than US$1 per

day, even though GDP per capita is US$3,787

 The income split essentially means that India has two separate

consumer segments, which are further split by strong regional differences

 India is one of the world’s largest food producers and has a large

agriculture industry and combined with a cultural preference for fresh food, means that India supplies the majority of its own food for consumption

 India is a growing market for processed food imports, which are

becoming more popular with the younger population, especially in urban areas

 Consumption of food and beverages was estimated at US$366.8

(23)

(24)

 Primary food processing (packaged fruit and vegetables, milk,

milled flour and rice, tea, spices, etc.) constitutes around 60% of processed foods

 It has a highly fragmented structure that includes thousands of

rice-mills and hullers, flour rice-mills, pulse rice-mills and oil-seed rice-mills, several thousands of bakeries, traditional food units and fruits, vegetable and spice processing units in the unorganized sector

 In comparison, the organized sector is relatively small, with around

516 flour mills, 568 fish processing units, 5’293 fruit and vegetable processing units, 171 meat processing units and numerous dairy processing units at state and district levels

(25)

Segment

Dairy

Sector _VegetablesFruit and

Meat and Poultry Processing Fisheries Packaged foods Beverages Staple foods Growth rate of the market 15% 10% 10% 20% 8% 27% 85% Key segments Value added milk products like butter, Cheese, ghee , condens ed milk and infant food Raw fruit and vegetables, fruit pulps, canned fruits and pickles Cattle, buffalo and poultry Marine fisheries, frozen products and minced fish products Noodles/ vermicelli Fruit-based drinks and carbonated drinks Sugar, wheat flour and salt Extent of Processing 37% 2% 1% 12% - - -Share of organized sector 15% 48% 5% - 80% 77% 50%

(26)

 The overall packaged food industry reached US$25.4 billion in 2011

and is forecast to grow to US$38.5 billion by 2016

 The highest value segments of packaged foods in 2011 were to be

‘dairy’ (at US$9.1 billion), followed by ‘bakery’ (at US$4.9 billion), and ‘oils and fats’ (at US$4.1 billion)

 The West India region has the highest value sales of packaged foods

in India

 A large number of brands from domestic and multinational players

are present in the region and many international brands are imported

(27)

 Consumer awareness of packaged foods is also high in North India,

which is one the most affluent regions in the country with areas such as New Delhi, NCR, Chandigarh, Jaipur and Lucknow

 This has resulted in packaged foods seeing good growth in the

region and this trend is expected to continue

 East and Northeast India are the smallest markets in India for

packaged food, due to the underdeveloped nature of these areas and continued political instability

(28)

(29)



ITC Limited



Parle Products Pvt. Ltd.



Agro Tech Foods



Amul



Perfetti India Ltd.



Cadbury India Ltd.



PepsiCo India Holdings



Nestle India Pvt. Ltd.



Britannia Industries Ltd.



Hindustan Lever

Limited



Milkfood



MTR Foods Limited



Godrej Industries

Limited



Gits Food Products Pvt.

Ltd.



Dabur India Ltd.



Conagra Foods



Nissin Foods



Wal-mart



Venky's

(30)

(31)



India today stands first in the world in terms of milk production



The output is expected to be about 108 million tonnes

(estimate for 2007), growing at a compounded annual

growth rate of 4%



Consumption of milk has registered a growth of nearly 8.4%

(in urban areas) and is currently valued at US$ 16 billion



Within India, the dairy sector also ranks second in terms of

(32)

 The organized sector processes an estimated 15% of the total milk

output in India. There are 676 dairy plants registered with

Government of India, which come under the organized sector

 According to estimates of “Dairy India 2007”, the current size of the

Indian dairy sector is US$ 62.67 billion and has been growing at a rate of 5% a year. Both production and consumption of milk and its derivatives are traditionally high in the country

 The dairy exports in 2007-08 rose to US$ 210.50 million against US$

113.57 million in the corresponding period, in the last fiscal, whereas the domestic dairy sector is slated to cross US$ 108 billion in revenues by 2011

(33)



Milk and milk products contribute to a significant 17% of the

country’s total expenditure on food



Traditional dairy products account for about 50% of the total

milk produced



The market for dairy products is expected to grow at 15-20%

over the next three years



Ghee (or clarified butter) is the most widely marketed and

branded product with a nation-wide penetration of 24.1%

(34)



The dairy whitener market comprises of sweetened milk

powders, condensed milk and creamers. Its market size is

estimated at US$ 450 million for 2005-06



The cheese market is estimated at US$ 2.49 million for 2005-06

(54’000 tonnes in volume terms), growing at a rate of nearly

10% per annum



The organized cheese market is dominated by processed

cheese which accounts for 74% market share



The ice-cream market in India is estimated at US$ 226 million

(35)



Probiotic dairy products - containing live organisms building

immunity and helping in digestion - are an emerging

category in the Indian food market



Along with domestic dairy majors like, Amul and Mother

Dairy, global players like Nestle have made significant

investments to capitalize the potential of this particular niche

segment



The latest entrant is Yakult Danone with its investment worth

US$ 28.3 million and an additional US$ 20.8 million on the

cards for the next 2-3 years

(36)



According to the latest report on 'Indian Functional Foods

and Beverage Markets' by Frost & Sullivan, the market of

neutraceuticals and probiotics earned revenues of over US$

185 million in 2007 and is projected to touch an estimated US$

1.16 billion in 2012



Although the segment is currently in its nascent stage, it is

poised for an upswing riding piggy-back on a healthy

domestic economy and awareness of health products, thus

giving a boost to this segment.

(37)

(38)

 India produces the widest range of fruits and vegetables in the

world. It is the second largest vegetable and third largest fruit producer accounting for 8.4% of the world’s food and

vegetable production

 The share of organised sector in fruit processing is estimated to

be nearly 48%

 Fruit production in India registered a growth of 3.9% during the

period 2000-05 whereas the fruit processing sector grew several times faster at 20% over the same period

 The total area under fruit cultivation is estimated at 4.18 million

hectares

 The total area under vegetable cultivation is estimated at 7.59

(39)

 However, less than 2% of the total vegetables produced in the

country are commercially processed, as compared to nearly 70% in Brazil and 65% in USA

 While products like juices and fruit concentrates are largely

manufactured by the organized sector, pickles, sauces belong to unorganized sector

 About 20% of processed fruits and vegetables are exported. Major

products exported include fruit pulps, pickles and chutneys, canned foods, concentrated pulps and juices and vegetables

 Fruit exports have registered a growth of 16% in volume and 25% in

value terms in 2005-06. Mango and mango based products alone constitute 50% of these exports

(40)

(41)



India produces over 200 million tonnes of grains every year



India’s production covers all major grains are rice, wheat,

maize, barley and millets like jowar, bajra and ragi



It ranks third in the production of grains in the world



With a share of 40%, grain processing is the biggest

component of food sector



Primary processing constitutes 96% with the remaining

(42)



Total rice milling capacity in the country is around 190 million

tonnes



There are about 516 large flour mills in the country, as well as

about 10’000 pulse mills



Soya food segment is also growing due to increased health

consciousness and abundant production of quality soya

bean (3.72 million tons/year) in the country

(43)

(44)



Total meat production is around 5 million tonnes annually



Most of the production largely belongs to unorganized

sector. Some of the organised players are Venky’s and

Godrej’s Real Chicken



Only 1-2% of the meat produce is converted to value added

products



Growth rate of egg and broiler production is around 16% and

20% respectively

(45)

(46)

 The fisheries sector contributes to 1.4% of the country’s GDP

 Processing of fish and canned fish is almost entirely for export market

 The fish and seafood market has continued to grow strongly as

middle-class Indian consumers’ purchasing power continues to grow. However, this is starting from a very low base.

 Molluscs and cephalopods are the fastest-growing categories of fish

and seafood

 India’s National Fisheries Development Board is spending Rs6.2 billion

(US$123 million) to expand the use of intensive aquaculture in India, providing money to help farmers adopt technologies for sustainable fish farming and fish seed production

(47)

(48)



Consumer food industry which is a subset of the

food industry consists of:



Packaged Food



Aerated Soft Drinks



Packaged Drinking Water



Alcoholic Beverages



The segment consists of bakery products,

(49)

(50)

 The beverages market primarily consists of non-alcoholic beverages

which can be broadly classified into carbonated drinks, non-carbonated drinks and hot beverages

 According to industry experts, the market for carbonated drinks in

India is worth US$ 1.8 billion while the juice and juice-based drinks market accounts for US$ 300.67 million, of the approximately US$ 2.38 billion packaged beverages category. Growing at a rate of 25% per cent

 The fruit-drinks category is one of the fastest growing in the

beverages market

 The US$ 1.80 billion carbonated drinks category is expected to face

(51)



Categories falling under the health umbrella, i.e. juice and

juice-based drinks, energy and sports drinks, malted

beverages, probiotic drinks and bottled water. They are

considered a socially acceptable alternative to alcoholic

beverages



At US$ 300.67 million, the juice and juice drink category is

among the fastest growing segments



While fruit drinks as a category is growing at 18% - 20%,

carbonated soft drinks are growing at 6% - 8% driven by the

positive changes in India’s consumer profile.

(52)

(53)



Two of the world’s biggest global brands are well

established in this segment



Soft drinks constitute the third largest packaged

food segments after tea and biscuits



Penetration levels of aerated soft drinks if quite low

compared to other developing and developed

markets

(54)

(55)



Trends such as shortage of drinking water, changes

in consumer lifestyle has fueled growth in this

segment



Almost all the big players in the F&B players are

(56)

(57)



Hot beverages include health drinks such as white beverages

(Horlicks, Bournvita, etc) and brown beverages such as

tea/coffee as well as branded drinks (Boost)



The total size of this market is estimated at US$ 333 million by

value and 85’000 tonnes by volume. White beverages

account for 65% of the market and brown beverages

constitute the remaining 35%



India is the largest producer of tea in the world accounting

(58)



Tea production in India has been growing at 1.2% per annum

and India is the fourth largest exporter of tea in the world with

estimated exports of US$ 5 million in 2002-03



India is also the fifth largest producer of coffee accounting

for 4% of the total production in the World



Nearly 75% of India’s production is exported and coffee

(59)

(60)



India is the third largest for alcoholic beverages in the world



The demand for spirits and beer is estd. Around 373 million

cases per annum



There are 12 joint venture companies producing grain based

beverages with a combined capacity of 33.9 million liters per

annum



The overall wine forecasted to grow to INR23,140.2 million by

(61)



The highest value segments are estimated to be ‘still light

grape wine’ (at INR7,884.7 billion), followed by ‘sparkling’ (at

INR1,846.8 billion), and ‘fortified wines’ (at INR1,213.2 million)



And, while Bangalore, Chandigarh, Mumbai are reporting

high growth in consumption, Nasik, the capital of Indian

wines, registered a 100% rise



Out of the total consumption of grape wine in India, around

(62)

(63)



Bread is slowly coming to be a staple product consumed

by people of all economic classes in India



Total bread production in the country in 2004-05 was

estimated at 2.7 million tons, growing at 7.5%



About 55% of bread production comes from the organised

sector



India is the second largest producer of wheat in the world

with an output of more than 70 million tonnes



Branded ‘atta’ (wheat flour) is an important item in this

(64)

(65)

 The Indian market holds enormous growth potential for snack

food, which is estimated to be a market worth US$ 3 billion

 The organised sector of the snack food market is growing at 15%

- 20% a year while the growth rate of the US$ 1.56 billion unorganized sector is 7% - 8%

 Consumption level of commercial savory snacks is 10 times

higher than that in the rural markets

 Around 1’000 snack items and 300 types of savories are sold in

India

 The segment is largely dominated by potato chips and

(66)

(67)

 The global retail market for organic food has grown to US$ 100 billion

from US$ 35 billion over the last three years

 The exports of organic food from India have grown to US$ 65 million

over the past one year from US$ 21.6 million two years ago

 Some players, like Navdanya, organically cultivates crops like jowar,

bajra, millet, in its 21 acre farm in Dehradun and sells it from its retail outlets in Delhi and Mumbai

 The number of such growers has been rising in the Dehradun valley

and Bundelkhand. APEDA in association with the Ministry of

Agriculture has taken an initiative to convert 20’000 farmers and a total area of 75’000 hectares to organic farming over the next three years

(68)

 Following suit, the Darjeeling Tea Association (DTA) has mounted

efforts to increase the production of organic tea

 According to the industry experts, about 37% of the total crop

grown on the slopes of the eastern Himalayas, at present, is organic tea, as per certifications given by European and Japanese

agencies. DTA is aiming to organically produce the majority of the champagne of teas by 2010

(69)

(70)



Overall food and beverage consumption is expected to

grow at rates between 6–11 percent for the next few years



The products and sectors that are expected to have the

highest potential for growth are:

› Ready to eat meals, canned foods and snacks are forecast to be in higher demand

› There is high growth for processed dairy and milk products.

Additionally, the dairy processing industry in India is growing and demanding milk and dairy ingredients

› Cheese, butter, whey, yoghurt and ice cream are some of the major dairy products that are imported with cheese being the most popular

(71)

› In India, tea is one of the only beverage products that has a mature market. Other beverages such as coffee, carbonated drinks and functional drinks all are experiencing high growth.

Coffee consumption is expected to grow 20–30 percent per year for the next few years

› Demand for wine is also growing, but the market is still captured mostly by domestic suppliers due to high tariffs on imported

wines. Still red wine sales are forecast to grow by 17.6 percent compound annual growth rate (CAGR) between 2010 and 2015, fortified wine by 15.9 percent and still white wine by 15.2 percent

› As incomes rise, the consumption of fish is expected to increase 17 percent by 2015

(72)

(73)

(74)

Consumer Food Sector Packaged Food Confectionary Canned Food Bakery Processed food Dairy Noodles & Pastas

Sweet and Savory Snacks Oils and fats

Sauces and Spreads Soups & Ready

(75)

 Also referred to as convenience food, packaged food is divided

into numerous segments

 Some of the leading players in packaged food in India are

Hindustan Unilever, Gujarat Co-operative Milk Marketing Federation, Nestlé India Ltd, Frito-Lay India, GlaxoSmithKline Consumer

Healthcare Ltd, Britannia Industries Ltd, MTR Foods and Karnataka Cooperative Milk Producers Federation Ltd.

 With the range of packaged food products available in India likely

to become wider and awareness of such products expected to increase over the forecast period, it is expected that packaged food will continue to witness healthy growth in the future.

(76)

0.0 2,00,000.0 4,00,000.0 6,00,000.0 8,00,000.0 10,00,000.0 12,00,000.0 14,00,000.0 16,00,000.0 18,00,000.0 2007 2008 2009 2010 2011 2012

Market Size by Retail Value

(77)

(78)



Confectionary retail value sales in India rose by 7% in 2012



It includes the following –

›

Chocolate Confectionary

 Its sales grew by 13% in 2010  Manufacturers are

increasingly targeting both upper and lower income consumers

›

Gum

 Sales grew by 4% in 2010  Can be attributed to its

rising consumption in smaller towns & cities

›

Sugar Confectionary

 Sales grew by 1% in 2010 0.0 20,000.0 40,000.0 60,000.0 80,000.0 1,00,000.0 1,20,000.0 1,40,000.0 2007 2008 2009 2010 2011 2012 Market size Confectionery

(79)

 Stronger economic growth has boosted consumer confidence and

led to increased disposable incomes

 This has benefited the performance of key indulgence categories

like chocolate confectionery and functional gum, which command higher unit prices

 Giving chocolate as a gift for festive occasions has returned

 Medicated confectionary is also exhibiting robust performance and

grew by 2.4%in 2010

 Functional gum remained the best performing gum category in

value terms in 2010, growing by around17%

 This can be attributed to active efforts by the manufacturers to

(80)

(81)

 Canned/preserved food is expected to increase in current value

by 17% in 2012, rising to INR4.5 billion

 Canned/preserved fruit is set to record

the highest growth in 2012, rising in current value by 17%

 Canned/preserved fruit and

canned/preserved

vegetables remain the largest categories in

canned/preserved food

 Canned/preserved food is

set to increase in constant value at a CAGR of 8% over

the forecast period 0.0

500.0 1,000.0 1,500.0 2,000.0 2,500.0 3,000.0 3,500.0 4,000.0 4,500.0 5,000.0 2007 2008 2009 2010 2011 2012 Canned/Preserved Food Canned/Preserved Food

(82)

 Consumer awareness of packaged food categories such as

frozen processed food and canned/preserved food continued to rise in India

 This is occurring mainly due to the initiatives being undertaken by

companies such as McCain Foods India Pvt. Ltd with the aim of educating Indian consumers about the benefits of these

packaged food products

 Canned/preserved fruit and canned/preserved vegetables

were the first categories to be introduced & are set to be the fastest growing categories in canned/preserved food

 However the value growth is expected to be lower than that of

frozen processed food

 The consumption of canned/preserved food remains limited to

urban areas and the distribution of these products is concentrated in modern grocery retail channels

(83)

(84)

It includes the following –



Baked Goods

› It is expected to post a CAGR of 4% in constant value terms

› Unpackaged/artisanal pastries is likely to register the fastest growth of 13%



Biscuits

› Its’ sales are expected to post a CAGR of 9%

› Cookies is expected to register › the strongest value growth



Breakfast Cereals

› It is projected to grow by a CAGR of 16%

› Hot cereals is likely to lead breakfast cereals with value

sales rising 33% in 2011 0.0 50,000.0 1,00,000.0 1,50,000.0 2,00,000.0 2,50,000.0 3,00,000.0 2007 2008 2009 2010 2011 2012 Market Size Bakery

(85)

0.0 20,000.0 40,000.0 60,000.0 80,000.0 1,00,000.0 1,20,000.0 1,40,000.0 1,60,000.0 1,80,000.0 2007 2008 2009 2010 2011 2012 Baked Goods Biscuits Breakfast Cereals

Market Size

(86)

 Demand for bread is relatively stable and consumers are shifting

towards healthier formats such as brown or enriched bread

 Bread, cakes and pastries have grown, aided by franchise

expansion of the leading chains of both artisanal and packaged players

 Cakes are increasingly being used as gifts instead of traditional

sweets

 Artisanal baked goods players were the leaders with a 57% value

share in 2010

 With chained supermarkets/hypermarkets projected to expand

further to reach tier-two and tier-three cities, this will give rise to an increasing number of in-store bakeries

(87)

 Consumers consider biscuits as a cheaper indulgence and

nourishing products and an alternative to higher-priced cakes, pastries, and sweets

 Diverse flavors and new products have made biscuits a more

attractive snack for young consumers

 Innovations such as savory biscuits and crackers have contributed

majorly to the growth

 With the rise in lifestyle related diseases including diabetes,

hypertension and obesity, health has become a key factor

 Leading manufacturers have started offering biscuits positioned on

the health and wellness platform including sugar free, diabetic-friendly products, oat or wholegrain based

(88)

 An increasing number of manufacturers have fortified breakfast

cereals with vitamins, added health food ingredients and promoted their health benefits through educational and social programs

 Growing awareness of the benefits of oats for heart health drives

demand for breakfast cereals

 Mueslis was the second fastest growing breakfast cereal category.

 Niche products have emerged in the market, such as bran flakes,

oatmeal squares and low fat granola, but their sales will be limited to urban areas because they are currently only available in large supermarkets/ hypermarkets

(89)

(90)

It includes the following –



Frozen Processed Food

› It is expected to increase in constant value at a CAGR of 17% › Frozen processed red meat is set to be the fastest growing frozen

processed food category in 2012, increasing in value by 24%



Chilled Processed Food

› Sales of chilled processed food are set to remain negligible



Dried Processed Food

› It is expected to increase in constant value at a CAGR of 16%

› Instant noodles with a value growth of 30% followed by Rice with a value growth of 24%

posted the highest value growth 0.0

10,000.0 20,000.0 30,000.0 40,000.0 50,000.0 60,000.0 70,000.0 80,000.0 90,000.0 1,00,000.0 2007 2008 2009 2010 2011 2012 Market Size Processed Food

(91)

 The rising number of supermarkets and hypermarkets with freezer

display cabinets contributes to the strong growth registered in frozen processed food during 2012

 Mother Dairy Fruit & Vegetable Ltd, Al Kabeer Exports Pvt. Ltd and

Venky’s India Ltd are the three leading players

 The changing perception of frozen processed food is based on rising

awareness of its benefits in comparison with fresh food, and this in turn is driving its growth

 Frozen processed vegetables is set to account for 44% of total frozen

processed food retail value sales with Green Peas being the dominant format

 The retail distribution of frozen processed red meat and frozen

(92)

 The rising awareness of frozen processed food and canned food in

India has the potential to help build awareness of chilled processed food as well

 A number of players introduced premium products in rice in India

during 2011 and 2012 as many consumers became more willing to spend money on high quality rice

 Spurred on by a variety of factors such as better shelf positioning,

visual merchandising and in-store promotions, rice is expected to increase in value by 24%

(93)

(94)

It includes the following –



Ice Creams

› It is expected to increase by a CAGR of 12%



Yogurt & Sour Milk Products

› It is expected to increase by CAGR of 20%



Cheese

› It is expected to post a CAGR of 14%



Drinking Milk Products

› Its’ sales are expected to post a CAGR of 7%



Other Dairy Products

› It is expected to increase by a › CAGR of 3% 0.0 1,00,000.0 2,00,000.0 3,00,000.0 4,00,000.0 5,00,000.0 6,00,000.0 2007 2008 2009 2010 2011 2012 Market Size

(95)

 Current value sales of single portion dairy ice cream are expected

to see the fastest growth

 Historically, ice cream consumption in India was limited to the

summer months but gradually it has become popular as a dessert option

 The healthy growth being registered by ice cream fast food chains is

expected to result in increased demand for retail forms

 Flavored and fruited yoghurt are receiving increased attention

 Pro/pre biotic drinking yoghurt sales are also increasing rapidly

 Packaged and branded soft cheese (primarily paneer in India)

overtook processed cheese for the first time in terms of value sales in 2010

(96)

 The popularity of foreign cuisine such as pasta, pizza, and burgers, is

likely to drive the retail volume growth of cheese in India

 Spreadable processed cheese is expected to see the highest

constant value CAGR, as it will gradually serve as a viable alternative to spreads in India

 Spicy variants of processed cheese & packaged paneer will

dominate the push towards product diversification

 Fresh/pasteurized milk is expected to comprise 83% of value sales of

drinking milk products

 Ambient flavored milk drinks is expected to be the dominant format

in India, as chilled milk drinks face operational constraints in the country

(97)

 Value-added products such as fermented milk and fruit-based

dairy drinks are likely to experience many new product launches

 Dairy only flavored milk drinks and soy milk are forecast to see the

fastest growth

 Milk and milk powder, which are both essential components of other

dairy products in India, registered exceptional increases in both wholesale and retail prices in 2011

 New categories such as cream and dairy-based desserts are

(98)

(99)

It includes the following –



Noodles

› It is expected to increase by a CAGR of 18%

› Pouch instant noodles will experience the fastest growth



Pastas

› Strong growth in the category due to the rising popularity of Italian cuisine 0.0 5,000.0 10,000.0 15,000.0 20,000.0 25,000.0 30,000.0 35,000.0 40,000.0 45,000.0 2007 2008 2009 2010 2011 2012

Noodles & Pasta

(100)

 Due to the heavy advertising by manufacturers, the awareness of

this product has improved drastically and has thus evolved to become a regular staple in all households

 Manufacturers are experimenting with different & exotic flavours to

offer a wide choice of product offerings

 Noodles was dominated by Maggi five years ago, but with brands

like Foodles, Yippie! and Knorr entering the space through brand extensions and deep advertising pockets coupled with strong distribution networks, the competition is intensifying

 Soup, oat and curry noodles have also been launched

 Many private label products have entered pasta and are expected

(101)

(102)

 It is expected to increase at a CAGR of 13%

 Sweet and savory snacks witnessed many product innovations under

the health and wellness banner

 Nuts is expected to grow by 13%

 Extruded snacks is expected to

show robust growth which will be mainly attributable to high sales from snacks at lower price points priced between Rs5-10

 The biggest threat to this category

are growing health concerns

0.0 10,000.0 20,000.0 30,000.0 40,000.0 50,000.0 60,000.0 70,000.0 80,000.0 90,000.0 1,00,000.0 2007 2008 2009 2010 2011 2012 Market Size

(103)

(104)

 It is expected to increase by a CAGR of 4%

 Vegetable and seed oil continues to dominate oils and fats

 Although activity on the health

and wellness front is on the rise price is still a key concern

 Olive oil is expected to see the

fastest growth

 New packaging sizes in margarine

& ghee are being introduced to Drive volume sales

0.0 50,000.0 1,00,000.0 1,50,000.0 2,00,000.0 2,50,000.0 3,00,000.0 3,50,000.0 4,00,000.0 2007 2008 2009 2010 2011 2012 Market Size

(105)

(106)

It includes the following –



Sauces, Dressings & Condiments

› It is expected to increase by a CAGR of 8% › It will witness 19% value growth



Spreads

› It will witness value growth of 12% › Honey is likely to lead in spreads

with 13% growth in current value sales 0.0 10,000.0 20,000.0 30,000.0 40,000.0 50,000.0 60,000.0 70,000.0 2007 2008 2009 2010 2011 2012 Market Size

(107)

 International cuisines drive sales of sauces, dressings and

condiments

 Wet/cooking sauces are still at a nascent stage in India

 Another factor which has led to robust growth in this category is the

increasing prices of vegetables, like onion, garlic and ginger

 The most popular table sauce is mayonnaise which showed the

highest value growth in table sauces

 Ketchup is the most notable category in table sauces which will

grow by 16%

 Companies have come up with innovative squeeze bottles which

(108)

 MTR Foods Ltd which forayed into the snacks market is eyeing

acquisitions in the jams and ketchup categories

 Field Fresh Foods Pvt. Ltd has plans to introduce pasta sauce to the

Indian market

 Honey, jams and preserves made up the bulk of spreads sales in

2011

 There is fast growing interest in chocolate spreads, such as Nutella in

nut-based spreads, or Skippy in peanut butter

 The lack of growth in the bread segment, coupled with competition

(109)

(110)

It includes the following –



Soup

› It is expected to increase by a CAGR of 12% › Dehydrated soup to exhibit 21% value growth



Ready Meals

› Canned/preserved ready meals and frozen ready meals are set to be the most important categories in ready meals 0.0 500.0 1,000.0 1,500.0 2,000.0 2,500.0 3,000.0 3,500.0 2007 2008 2009 2010 2011 2012 Market Size

(111)

 Canned/preserved soup, which is more popular than dehydrated

soup worldwide, is expected to show a decline in value sales

 Manufacturers are launching soups in varieties of exotic flavors to

appeal to consumers’ taste buds

 Potential threats include competition from other snack offerings,

such as biscuits, snack bars and cereals, which are expected to compete with soup on the convenience and health front

 Another potential threat for this category is the lack of awareness

about such products in rural areas

 Both Indian companies and international players are expected to

make attempts to launch new products in ready meals which target demand for local flavours and traditional dishes

(112)

(113)



Demographical Changes

› India has a large young population; with a median age of 25.5 as of 2012 › They have sufficient disposable income, are individualistic and want to

stand out in whatever they do.

› As a resulting they are driving demand for & rapidly embracing new brands

› Children are aware & have become more vocal in making their preferences known to parents

› An increasing number of young adults have moved to cities for work or study & also make daily decisions regarding what food products to buy



Socio Economic Drivers: Increased Income /

Affordability

› The Indian middle class is increasing in size and purchasing power and will definitely spend more on this category of consumer expendables

(114)



Expansion in the Food Services Sector

› The proliferation of foodservice outlets and consumer’s interest in dining out will present growth opportunities for packaged food manufacturers in coming years

› The consumers palate is also expanding and they are increasingly experimenting and trying out varied cuisines and flavors

› This has generated interest in packaged food products with international flavors

› Products that will benefit from these trends include cheese, sauces and dressings, frozen processed food, noodles, pasta, oil and fats

› Olive oil is also expected to perform well as consumers become more familiar with its use in preparation of Western dishes, as well as its health benefits

› Similarly, noodles and soup will also gain greater acceptance among consumers

(115)



Focus on Health Benefits

› In larger cities consumers are switching to healthier options of packaged food, such as whole meal bread and low-sugar sweets

› Healthy products positioned for the mass segment are expected to perform more strongly than products targeting the niche high-income segment

› With increases in disposable incomes consumers may be more willing to pay for healthier products which are often priced higher than similar products without health positioning

› Manufacturers continue to push health-oriented products, as they

recognize there is huge potential for health and wellness to develop in India

› Manufacturers may also look at new fortified products aimed at rural consumers looking for basic nutritional needs such as iron, calcium, protein, etc.

(116)



Urbanization & Shifting Lifestyles

› The increase in urbanisation has led to a demand for premium products in this segment

› Shifting lifestyles of Indian people & the ongoing increase in the size of India’s middle-class population is also driving demand

› Due to the paucity of time, consumers are looking at options where the meal can be prepared fast and is tasty as well

› Coupled with these, factors like an increasing number of working couples and shortage of household help is also driving the sales

› Consumers’ dietary mix is changing with increased focus on international food and reduced consumption of traditional food

(117)



Marketing Efforts

› Leading multinational manufacturers have started using social media to engage young consumers

› Examples of such products include sweet and savory snacks, sugar confectionery, ice cream and snack bars etc.

› The increased reach of media channels such as television and Internet in both urban and rural India is likely to help the growth of consumer goods’ value sales over the forecast period

› Marketing efforts for brands such as Quaker and Kellogg’s heightened awareness for the entire cereals category, while increased instances of breakfast buffets at restaurants led to growth in demand for hot cereals as well.



Another factor which has led to robust growth is the

increasing prices of fresh food & vegetables, like onion, garlic

and ginger

(118)



Indian consumers, particularly the younger

population, are becoming more accepting of

different food and drink products



There is increased demand for product variety, as

well as products from different countries



The number of imported food products is

increasing in retail stores. This trend is evident not

only in organised retail, but also in the small

family-owned stores which dominate themarket.

(119)



Glocalisation is the localisation of globalised products or

services and has caused international food products to be

adapted to suit Indian consumers



For example, McDonald’s in India provide vegetarian rather

than beef burgers and pizza chains serve pizzas with Indian

toppings such as curry



This has resulted in greater acceptance and increased

demand for international food and beverage products in

India

(120)



With busier lifestyles, Indian consumers are moving

away from the traditional three meals per day

schedule



Smaller and more frequent meals are becoming

common, resulting in higher demand for

convenient products and snacks.

(121)



As more women join the work force and

households become smaller, packaged and

processed products such as ready to eat meals,

canned foods and snacks will be in higher

demand.



The most popular ready to eat products are those

(122)



Demand for specialty and high value

foods such as chocolates, almonds and

other dried nuts, cakes and pastries,

imported fruits, fruit juices, and Indian

sweets peaks during the festive season,

especially at Deepawli (Diwali) - the

(123)



Changes in Retail Format

› Growth in modern chained grocery retailing

› Supermarkets/hypermarkets have emerged as a key retail channel for packaged food, as their share in overall retail sales increased by three percentage points

› The expansion of chained grocery stores and increase in product offerings, such as more imported brands on retailers’ shelves has contributed to the growth

› There are also a growing number of specialist retailers in urban areas, especially in shopping centers, which attract high-end consumers

› Their specialization with cold chains and associated product categories makes these outlets a favorite among manufacturers looking to cater to select urban consumers



Other factors expected to positively influence growth of dried

processed food include the lower levels of regulation

expected in dried processed food and the increasing

cultivation of rice

(124)



Efficient Back End infrastructure

› The growth of cold chain infrastructure is likely to heighten the use of frozen processed food, chilled processed food and non-traditional dairy products in India

› International manufacturers and domestic manufacturers with strong financial backing are expected to begin providing freezer display cabinets to Indian grocery retailers in the near future in order to encourage them to stock their goods



FDI in retail

› With government allowing 51% FDI in multi brand retail and 100% FDI in single brand retail, International giants such as Wal-Mart & Carrefour are coming in

› With the arrival of these giants, there is immense scope of growth for new segments in packaged food

› This also signals the arrival of more international giants and increased versatility of products

(125)

(126)



Development of effective distribution network

and supply chain:

›

India with its high rural population mandates the

companies to have an extensive distribution network

›

The market share is linked to distribution and product

availability in a major way



Various range of product offerings, which is

customized to meet local market requirements

›

India with its high diversity requires companies to

customise their products to suit the local tastes

(127)



Superior processing technology to compete with other

players in the market

› The players in the market need to possess the latest technology in order to compete and face the price sensitive audience



Brand building and marketing to gain market share;

increasing penetration in domestic market; competitive

pricing

› With a mixed set of organised and unorganised players in the market, there is a strong need for brand building and marketing to generate the required reach

› The market is majorly price sensitive further adding to the requirement of competitive pricing

› There is a constant effort to penetrate into the remotest of the areas to increase the presence

(128)

(129)



During September 2011, US-based McCormick & Co Inc

completed the formation of a joint venture with Kohinoor

Foods Ltd for the marketing and distribution of basmati rice

and various other packaged food products in India



McCormick invested a total of INR5.2 billion (US$113 million) in

this transaction, which involves McCormick taking an 85%

stake in the new joint venture



Total revenues achieved by the company’s new joint venture

are expected to be in the region of US$85 million during its first

year of operation.

(130)



Ben and Jerry’s Homemade Inc.

plans to enter India



The unit of the Anglo-Dutch

consumer goods maker Unilever

Plc. - it took over the US

company in 2000 - is planning to

enter the Indian market within

six months

(131)



Danone entered India to seek potential growth for its

products.



The 15 years of learning Indian market allowed Danone to

change from its diversification strategy to being focused in its

Business line.



Danone BOP (Base Of Pyramid) India is charged with

developing and marketing products to lower income

consumers in smaller towns such as Gurgaon, Faridabad,

Panipat, Sonepat and Ambala, before gradually moving to

other parts of the country.

(132)



Reliance Retail has entered into a back-end joint venture

with 2 Sisters Food Group (2SFG), a UK-based

meat-processing company owned by entrepreneur Ranjit Singh, to

introduce chilled and frozen foods at its food & grocery

outlets



The company wants to bring multiple food options to its

customers and has already invested in a state-of-the-art food

innovation lab to support new products.

(133)



Pharmaceutical and Biotechnology major Wockhardt Limited

and its subsidiary today announced the signing of

agreements to divest their Nutritional business to Danone,

one of the fastest growing food Company in the world



Wockhardt has presence in India’s nutritional category with

(134)



Britannia Industries acquires the entire stake of Fonterra, the

company’s joint venture partner since 2002 in Britannia New

Zealand Foods Pvt. Ltd, which is engaged in the dairy

business.



Britannia Industries entered into an agreement with Fonterra

Brands (Mauritius Holding) Ltd, Mauritius, for acquiring the

latter’s 49 per cent equity and preference shareholding in

Britannia New Zealand Foods Pvt. Ltd (BNZF).

(135)

(136)

 India continued to experience inflation in 2011

 In particular, food and oil prices surged in the first half of the year,

although the pace of inflation slowed down in the later months

 Many packaged food manufacturers reported that rising input costs

put pressure on profit margins, and they either had to raise prices or manage costs more closely

 Players in the mass segment also launched low-price variants of

premium products to fatten profit margins

 Inflation also reduced consumer spending power. In particular,

consumers in the low-income segment were forced to reduce spending on non-essential items.

(137)

 In response, many manufacturers launched products in small

packets at lower prices

 For products where profit margins are thin, for example plain biscuits

and staples, dominant manufacturers were able to increase unit prices by applying direct price hikes or reducing pack sizes.

 Nestlé India raised prices of dairy products, and changed its

product mix to reduce focus on low-margin products in 2011

 Hindustan Unilever Ltd reported that it managed cost pressure

through aggressive saving programmes and price increases

 It also launched Cup-a-Soup in February 2012. Through the new

launch the company planned to increase volume sales through smaller packaging sizes.

(138)



Manufacturers targeting the mass segment launched

low-price variants of premium products



In January 2012 Parle Products Pvt. Ltd launched Happy

Happy chocolate chip cookie, which was priced 60%

cheaper than Parle Hide N Seek – the relatively premium

offering from the company



Where an 82.5g packet of Parle Hide N Seek commanded a

price of Rs 20.00, Happy Happy sells at Rs5.00 for a 45g pack



Hindustan Unilever Ltd’s Cup-a-Soup is also a cheaper soup

variant of its Knorr soup products

› The premium range of Knorr soup is priced around Rs35.00, while Cup-a-Soup is Rs12.00

(139)



Some manufacturers were reluctant to increase

price too much for fear of losing customers to

competitors



These manufacturers looked into more stringent

cost controls



Examples included ITC Ltd’s efforts to improve

production efficiency and Hindustan Unilever Ltd’s

efforts to reduce packaging costs.

(140)



High inflation has dampened India’s economic growth in

recent times



However, in January 2012 the annual inflation rate slowed to

a 2-year low of 6.6%



Easing inflation is expected to lower interest rates, increase

consumer expenditure and decrease input costs for

manufacturers



While the pace of inflation for input costs is expected to slow

down in 2012, commodity prices are likely to remain volatile

due to shortages of raw materials around the world, and an

unstable political situation in the Middle East

(141)

 Prices of certain food, such as milk and edible oils, remain a

potential problem area for inflation

 Uncertainties in the global economy are limiting the outlook for

export

 Packaged food value sales in North India are projected to see a

constant value CAGR of close to 9% over the forecast period, marginally slower than the national average

 The key growth driver will be growing demand for higher quality

products (for example richer chocolate, premium offerings, healthier products) and the switch from the unorganized segment to the

organized segment due to increases in consumers’ disposable incomes.

(142)

 In response to volatility in commodity prices, manufacturers will

continue to watch costs closely

 Given the forecast slowdown in the economy, consumer

sentiment may weaken, and manufacturers will be unwilling to raise prices

 Leading manufacturers may live with narrow margins and drive

volume sales instead, or they may reduce pack size while maintaining same price points

 Private label products are not expected to see dynamic growth

over the forecast period

› This is because margins are very narrow and retailers will not be able to price private label products much lower than leading