indian processed food industry analysis

o Introduction

o Segments of Industry

o Key Players

o Key Growth Drivers

o Barriers to Growth

o Estimated Growth

o Trends and Forecasts

o Segment Analysis

o Key Performance Indicators

o Critical Success Factors

o SWOT Analysis

o PESTEL Analysis

o Porter’s 5 Forces Analysis

o International Trends

o Regulations

o Imports

o Exports

o Recent Activity

o Cost and Profitability Analysis

o The Food Processing Industry had an estimated value of US $ 121

billion in FY12

o India’s food processing industry accounts for 32 percent of the Indian

food market

o It is expected to touch US $ 194 billion by 2015

o The sector registered a CAGR of 15.6 percent during FY 07-13

o It is ranked 5th in terms of production, consumption and exports

o In India, the industry is largely dominated by ready to eat segment, which

contributed to 90% of total sales of packages foods in India FY13

o The industry contributes to 1.3 – 1.5 % of India’s GDP

o Contribution of this industry in manufacturing GDP in FY12 stood at 14%

90 %

o The Indian Food Processing industry is primarily export oriented

o India’s agri and processed foods exports stood at US $24.04 billion

during April-March, 2012 – 13

o During FY 08-12, India’s exports of

processed food and related products

increased at a CAGR of 27.3%

$10.9bn

$10.7bn

$10.7 bn

$14.0 bn

$24 .0 bn

0 10 20 30

FY08

FY09

FY10

FY11

FY12

o Investments in this sector grew at 20 percent per annum in five years

o Total investment in this sector at present is estimated to be US$ 24.04

billion

o Approximately 10 million people are employed in this industry

o The Government of India expects about US$ 21.9 billion of investments in

food processing infrastructure by 2015

o FDI worth US$ 1,970.09 million has been invested during April 2000 to

July 2013, according to Department of Industrial Policy and Promotion

(DIPP)

Sectors Products

Dairy Whole milk powder, Skimmed milk powder, Condensed

milk, Ice cream, Butter and Ghee, Cheese

Fruits & Vegetables Beverages, Juices, Concentrates, Pulps, Slices, Frozen &

Dehydrated Products, Potato Wafers/ Chips, etc

Grains & Cereals Flour, Bakeries, Starch Glucose, Cornflakes, Malted Foods,

Vermicelli, Beer and Malt Extracts, Grain based Alcohol

Fisheries Frozen & Canned products, mainly in fresh form

Meat & Poultry Frozen & Packed – mainly in fresh form, Egg Powder

Consumer Foods Snack Food, Namkeens, Biscuits, Ready to eat food,

Alcoholic & non-alcoholic beverages

30%

35%

2%

10%

10%

13%

% share, 2011

Beverages and others

Grains and pulses

Fruits & vegetables

Oil

Meat & marine

Dairy

Player Segment Products About the company

Dabur India Ltd. Beverages & Culinary Fruit Juice, cooking

pastes, coconut milk,

tomato puree, lemon

drink, chili powder and

honey

• Closely held listed

company with

Promoter’s holding at

78.4 percent of the total

share capital

•Dabur Foods is a 100

percent subsidiary of

Dabur India

•Turnover of US$ 19.12

million in 2004

The company is focusing on boosting institutional sales to hotels, restaurants and caterers.


Nestle India Ltd. Dairy, Beverages &

Snack Food

Instant Coffee,

condensed milk, dairy

whitener, infant food,

chocolates and

confectionaries

• Incorporated in 1959

as food specialties,

Nestle Americana,

Switzerland promoted

Nestle India (NIL)

•Nestle India is 51

percent subsidiary of

Nestle SA

•Gross turnover in the

year 2007 was US$

652 million

The company is focusing on launching new products in all product segments

Player Segment Products About the

company

Parle Agro Private Ltd. Beverages and Bottled

Water

Fruit drinks and bottled

water

• Leading player in the

fruit based beverages

segment and the

bottled water segment

•Its flagship product is

the fruit based drink

Frooti Mango, which

has 75 percent market

share

Backward integration and aggressive media campaign for its product launches has broadly

been its strategy


Britannia Industries

Ltd.

Bakery Products Biscuits, flavored milk,

dairy whitener, ghee,

bread, cake and rusk

• A leading player in the Indian

organized biscuit market with

nearly 30 per cent value share

• The Nusli Wadia group, one of the

oldest business houses in India

and Groupe DANONE, French

multi-products food company,

equally share the 48.5 per cent

promoter holding in Britannia

• Sales of US$ 327.6 million in

2004

Britannia will strengthen its position by launching new products and improving volumes and

introducing variants of the existing ones


Cadbury India Ltd. Confectionery Chocolates, hard boiled

confectionery, malt

foods, cocoa powder

• Cadbury, a subsidiary of Cadbury

Schweppes is a dominating player

in the Indian chocolate market with

strong brands like Dairy Milk, Five

Star, Perk, Gems etc.

• Dairy milk is the largest

chocolate brand in India.

• Chocolates and confectionery

contribute to 75 per cent of

Cadbury’s turnover.

• Sales of around US$ 234.54

million in 2007

The company plans to increase franchise of its existing brands and continue to explore new

product opportunities including adjacent market opportunities


Pepsico India

holdings

Beverages and

Snack food

Soft drink, fruit juice

and

chips

• PepsiCo was founded in 1965

through the merger of Pepsi-Cola

and Frito-Lay.

• Tropicana was acquired in 1998

and PepsiCo merged with The

Quaker Oats Company, including

Gatorade, in 2001.

Pepsi’s focus is high volume scales and is raising capacity by setting up of new plants as

well as appointing new franchisee bottlers


Hindustan

Unilever

Limited(HUl)

Beverages,

Staples,

Dairy, Snack

Foods

Tea, instant coffee,

biscuits, ice-creams,

salt,

wheat flour -atta,

instant

drinks, soups, jam

and

squash

• The parent company Unilever holds 51.55

per cent of HUL’s equity

• India’s largest fast moving consumer

goods company, with leadership in

Home & Personal Care Products and Foods

& Beverages

• HUL’s brands, spread across 20 distinct

consumer categories, with

combined volumes of about 4mn tons and

sales of US$ 2.17 billion

• HUL’s Foods segment is at 9 per cent,

beverages are at 12 per cent

of its businesses

HUL has followed the strategy of divesting its non-core businesses and focusing on its food

business as a growth driver.

oIncreasing spending on health and nutritional foods

oIncreasing number of nuclear families and working women

oChanging lifestyle

oFunctional foods, fresh or processed foods

oOrganized retail and private label penetration

oChanging demographics and rising disposable incomes

oConsumers are more focused on health

oPackaged food that has sugar, salt, oil, preservatives etc beyond a

“healthy” level are becoming a no-no

oCompanies already are targeting this segment with numerous

product launches

oExamples - Pepsico's “100 percent” juice and usage of rice bran oil to

reduce saturated fat in its products

oIncreasing nuclear families, students and single employees are leading to rise in consumption of

processed read-to-eat canned and frozen foods

oThe number of upper and middle class Indians consuming packaged food is expected to rise to

200 million in 2012 from the current 30 million

oITC, MTR, Amul, etc are quick to capitalise on this trend with products like Dal Bukhara, Murg

Methi, Sunfeast Pasta Treat, Shrikhand, Pure Ghee, Nutramul etc

oChanging lifestyle and increasing spend for snack-on-the-go is responsible for a USD 3 billion and

growing snack market

oHaldiram’s, Frito Lays, ITC are quick to capture this market with products such as Masala Peanuts,

Chips, Bhujia and Chats

oFunctional Foods, Fresh or Processed Foods that claim to provide health benefits are

on the fast-growth path in India

oFabindia Organics, Organic Food retail outlets like 24 Letter Mantra and Godrej

Agrovet’s Nature Basket have big plans in this segment

oMost important demand booster for the processed food in India

oThe proportion of the “productive” age group (15-59 years) is nearly 80 in India

oThis age group’s propensity and ability to spend on quality processed food is higher

oHigher incomes as more Indians join to middle class and upper class also impact the

demand of processed food positively

o Organised retail comprises of less than 5% of the total retail market in India, but is

growing at over 20%

o Food retailing, which constitutes 14% of the organised retailing, is also expected to

benefit from the growth of organised retail

o With increasing trend of major retailers towards private labels, the demand from retail

market for processed foods is also expected to increase significantly

Every year India’s farms lose between 20-25% of their fruit and vegetable output (estimated

approximately at INR 52,000 crore) due to spoilage at various stages. Nearly 90% of food

processing units are small scale, operating with limited use of technology to enhance the

lifespan of their produce.

These problems are compounded by India’s poor transport infrastructure, which compares

unfavorably to other nations in transit time and transaction costs. For instance an Exim

container of foodstuffs will take 12-13 days to process in India, compared with just 3-5 days

in France or Denmark.

India is currently rated behind the other BRIC nations by the World Bank when it comes to

ease of conducting business. Excessive documentation is an example, where bureaucracy

gets in the way of efficiency. For instance transporting goods to India requires an average of

11 documents, as opposed to 2-3 documents in France and Singapore.

The current high rate of 12.5% VAT, along with a complicated range of other taxes such as

octroi and excise duty, also affects competitiveness of the sector and can put the price of

packaged foods out of reach for many customers.

In order to be profitable in the processed foods sector, companies need scale, the ability to

charge a premium and an efficient cost structure – each of which is problematic in India.

Scale is difficult precisely because India is so vast, requiring time and effort to fully establish

market penetration. Low levels of disposable income, a tendency toward value-consciousness

and a strong bargaining culture make it hard for companies to charge a premium, particularly

with competition from the unorganized sector.

To date, this has been met with no-frills products and small package sizes. However, this

strategy reduces profit margins and constrains the potential for enhanced products. These

factors combine with India’s problematic infrastructure to make efficiencies in cost structure

difficult. When we take into account the food industry’s vulnerability to inflation and changing

commodity prices, the difficulty of striking a profitable balance is clear.

o Approach 1: Looking at historical growth

Despite recent high levels of growth due to inflation, a longer-term perspective shows that the

average annual growth rate for packaged foods has been 13.5% since 1998. This provides a

baseline estimate which could be used to forecast growth for coming years

o Approach 2: Aggregating contemporary forecasts

Analysts predict growth rates for the packaged food sector anywhere from 9% to 13% for the

next 5-6 years. At one end of this scale, EuroMonitor points to high inflation and reduced

consumer spending power as factors which may limit growth, backed up by Datamonitor's

conservative estimate of 10%. At the other end, Gyan Research's higher figure looks

optimistically at the availability of raw materials, changing Indian lifestyles and the promise of

favorable regulatory policies

o Approach 3: Lessons from China

For decades now, India's per capita GDP has mirrored that of China with a lag of around 10

years. At India's current stage of domestic market development, China witnessed a significant

upswing in packaged food consumption.

o Approach 4: Bottom-up analysis of the sector

Growth will not be uniform throughout the sector. While annual growth in certain emerging sub-

sectors may reach as high as 20%, mature categories of the market such as plain milk, biscuit

and bread are unlikely to see rates higher than 8%.

These considerations lead us to assess the predicted rate of growth for India's packaged food

market at around 14% p.a. It's worth noting that this figure, whilst higher than previously

predicted, will still leave India behind peer nations such as Brazil and China by 2020.

There are two important conclusions to be drawn.

o First, growth will continue to be strong going forward and will be somewhat higher than

anticipated.

o Second, growth is going to be especially intense in select categories which have emerged in

recent years, such as flavoured milk and instant noodles. In contrast, categories that are

o basic and large today, such as bread and spices, will see slower growth going forward

o Packaged food continues to be heavily dependent on urban consumers

o Since packaged food such as ready meals and frozen processed vegetables offers a

great deal of convenience, such products are increasingly chosen by working couples

in urban areas

o Packaged food has gained more popularity in urban areas, as manufacturers have

started to offer healthy products such as fortified dacha, oats and atta noodles

o With urban consumers cutting back on their spending, and only meagre increase in

salaries, companies are focusing on tapping the rural market. They are launching their

products in smaller pack sizes and at low price points

o The launch of products at prices like Rs5 and Rs10 is helping companies protect their

market share. For instance, Kellogg’s India has launched breakfast cereals priced at

Rs10 which are mainly targeted at rural and semi-urban consumers

o Consumer foodservice showed strong double digit growth in 2012 and 2013, despite

the economic slowdown

o The number of foodservice outlets in India increased by 3% in 2012, to over 2 million

o Rises in disposable income, coupled with companies expanding their reach in tier II

and tier III cities helped in the robust growth

o Strong performances by fast food players and pizza full-service restaurants

contributed to the solid growth

o Despite challenges like high rents and inflation, the market has potential for further

growth. Fast food operators are opening new outlets in smaller towns to maximise

gains

o Consumer foodservice sales in India grew by 12% in 2012, reaching Rs5 billion. The

slight slowdown in growth compared with 2010 and 2011 was mainly due to rising food

inflation and an increase in the prices of petrol, which led to companies increasing their

prices significantly. This discouraged people from eating out regularly

o With the increasing popularity of Italian cuisine in India, pasta sauces and olive oil have

seen strong growth

o Consumers in India have become more adventurous in trying new cuisines. For

instance, restaurants catering to Japanese food or Thai food have appeared, which were

previously non-existent in India

o New locations, unique formats, innovative menus and exciting themes are contributing to

increased consumption. These are, in turn, increasing retail packaged food sales, as

consumers want to replicate these dishes at home

o Indian snacks are mainly dominated by unbranded products. This trend is slowly

changing, however, with an increasing number of consumers starting to buy branded

snacks instead of loose products from bakeries, due to the hygiene factor

o Many new players, like MTR Foods, Maiyas Beverages and Foods Pvt Ltd and Parle

Products Ltd, have forayed into snacks. Snacks which previously were prepared at

home are now sold in branded format, tapping into consumers’ paucity of time.

o Impulse and indulgence products in India witnessed 22% value growth in 2013. This

growth was similar to that recorded in 2012

o Impulse and indulgence products have been growing at a rapid pace due to rising

income levels, growing urbanisation and busy lifestyles. The gradual switching of

consumers to packaged products and aggressive marketing campaigns by

manufacturers to attract consumers to their brand have added to the growth

o Factors like irregular eating times, long breaks between lunch and dinner, and the increasing influence

of Western culture, including some unhealthy eating habits, are driving sales of many categories, like

snacks, cakes and ice cream

o Chocolate confectionery witnessed strong growth of 28% in 2013. Chocolate confectionery is growing

as consumption is expanding from children to adults. Adult consumers’ craving for luxury and premium

chocolates, such as Lindt, continued to grow further in 2013. To tap this trend, manufacturers of premium

chocolate brands, such as Chocoladefabriken Lindt & Sprüngli, expanded presence in premium stores,

such as Brown Tree, as well as outlets like Spar and many retail outlets in urban areas

o Sales of chocolate confectionery were supported further as consumers continued to prefer giving

premium chocolates on occasions such as the traditional Indian festivals of Diwali and Raksha Bandhan

o Packaged/industrial pastries witnessed the slowest growth in 2013, of 12%. This was significantly lower

than the 18% growth registered in 2012. Consumers have become more conscious about their spending

and have reduced the consumption of packaged industrial pastries, favouring alternatives such as snacks

and cakes instead

o Also, as there are only a limited number of national players in this market, consumers

did not have options like discounts, freebies and extras that could drive sales

o Independent small grocers continue to be the most popular channel for most impulse

and indulgence products, including sweet and savoury snacks and confectionery

o However, with growing urbanisation, resulting in a sharp rise in the number of modern

retail formats, such as supermarkets and hypermarkets, the distribution landscape for

impulse and indulgence products is undergoing a change in India. This trend is expected

to continue, with consumers switching to modern retail stores for a wider selection of

products and a more comfortable shopping environment

o There were no significant innovations in packaging in 2012 and 2013. However, leading

manufacturers are focusing on the type of colours and the packaging to differentiate

themselves from competition. Companies have also launched their products in smaller

pack sizes. For instance, Ferrero India Pvt Ltd has focused on introducing smaller bite

sized packs

o Growing demand for quick and tasty meals in India, coupled with increasing

urbanisation, changes in lifestyles and the emergence of advanced cold storage facilities,

has led to the growth of the meal solutions market in India

o The market for meal solutions, like ready meals and frozen processed food, is growing

as they are a quick fix meal solution compared to Indian food, with its lengthy preparation

time and complicated cooking processes

o For many middle class Indians living away from home, it is about the struggle to eat on a

small budget, and the challenge of rustling up a snack without a proper cooking appliance.

In such cases, meal solutions are popular.

o In 2013, current value sales increased by 17%, which was slightly faster than the review

period CAGR. Sales continued to be driven by the increasing number of women in the

workforce, who cannot devote much time to cooking and continue to seek convenient

products such as meal solutions. It is notable that the economic slowdown did not have a

major impact on sales of meal solutions, which are targeted mainly at urban consumers

o Frozen processed food saw the fastest growth in 2013

o The middle class population in India has gone through a dramatic transformation in lifestyles, moving

from traditional spending on food and groceries to “lifestyle” and convenience food products, like frozen

processed food. Frozen processed food can be easily customised to suit changing Indian tastes without

spending much time, and is available at all times of the year

o With the growing cold storage facilities in India, demand for frozen processed food is rising significantly.

Growth is also due to initiatives being undertaken by companies such as McCain Foods India, with the

aim of educating Indian consumers about the benefits of these packaged food products in comparison

with fresh food

o Dessert mixes did not perform in line with other products in meal solutions in 2013. The lower growth of

this category was mainly due to the availability of ready-to-eat sweets in local shops

o Traditional sweet shops make a particular effort to meet festival demand. Such sweets were traditionally

mainly prepared at home. However, due to busy lifestyles and scarcity of time, a transition to packaged

sweets is apparent

o Urban consumers are also beginning to prefer alternatives to traditional sweets. For instance,

Cadbury’s gift packs have successfully challenged the dominance of mithais or Indian sweets during

the festive seasons

o Biscuits, cookies and savouries are also gaining in popularity. This change in preferences has affected

sales of dessert mixes

o The distribution of most meal solutions, including soup, is expected to continue to shift towards

supermarkets and hypermarkets, because the target audience for such products is mainly urban

consumers, who are shifting from independent stores to modern retail outlets

o Consumers in metro areas are doing their grocery shopping in supermarkets instead of independent

small grocers

o Manufacturers will also focus their in-store promotion efforts on supermarkets, which offer large display

space and premium shelf positioning

o Average unit prices increased by 5% in 2013. Price rises are mainly attributable to factors like

increases in the prices of agricultural commodities, labour and petrol

o Manufacturers are looking at various ways to maintain stable prices. Companies are

buying agricultural commodities in bulk and much in advance, and hoarding them to

hedge the risks of increases in agricultural prices and traders hoarding commodities

during crop failures

o There was a substantial increase in the prices of meat and meat products which led to

an increase in unit prices of products derived from them

o Frozen processed food requires a cold chain which consumes a lot of electricity. The

prices of all these are ultimately passed on to end consumers, leading to increases in

unit prices

o Consumers shifting from loose or unpackaged products to packaged products are

driving sales of nutrition/staples in India

o Growing awareness of hygiene, coupled with easy accessibility to packaged milk, has

prompted consumers to move from loose milk to packaged milk. Most of the dairy

companies, such as CavinKare Ltd, continue to introduce value-added products, especially

flavoured milk and fruit-based drinking milk

o Value-added products have helped companies to maintain better margins and gain

profits. Many companies also introduced sour milk products, cheese and other dairy

products to reduce their dependence on drinking milk

o Nutrition/staples reached sales of Rs1,229 billion in 2013, growing by 19% in that year.

This growth was slightly higher than the 18% growth in 2012. There are many factors which

contributed to this growth, including urbanisation, coupled with rising prosperity and the

increasing pace of modern life, which has increased consumer spending on packaged food

o Another reason is consumers’ eagerness to try new food and drinks. Consumers’ demand for nutritious

and healthy food has increased, which is prompting them to turn to nutrient-rich milk products. All these

factors have led to strong growth in nutrition/staples in India

o Yoghurt and sour milk products saw the strongest growth in 2013, of 34%. Yogurt and sour milk

products have become increasingly popular amongst health conscious consumers, especially mothers

who want healthier snacks for their children.

o Products such as flavoured spoonable yoghurt and flavoured sour drinks offer a good combination of

flavour and heath, and have been well received by consumers. Leading manufacturers, including Nestlé

India Pvt Ltd, Danone Food & Beverages Pvt Ltd and Parag Milk Foods Pvt Ltd, have introduced

yoghurt variants in local flavours to suit the Indian palate

o Unpackaged/artisanal bread did not grow in line with other products in nutrition/staples in 2013. Growth

in artisanal bread was affected by the launch of other packaged healthier variants of bread, including

whole-wheat and multigrain. The availability of branded and healthier variants of bread allowed health-

conscious consumers to switch from artisanal bread

o Nutrition/staples enjoys a very diverse distribution landscape. The bulk of dairy products continue to be

sold through milk booths set up by regional dairy cooperatives; however, sales through hypermarkets

and supermarkets are growing rapidly

o With the entry of international players, such as Danone, which operates through modern retail stores,

coupled with rapid urbanisation, modern retail channels are growing rapidly in terms of number of

outlets and sales. Although sales of other nutrition/staples products in modern retail stores, including

bread and breakfast cereals, continue to grow, traditional stores remained the major distribution

channels in 2013

o New retail stores operated by food manufacturers themselves are also establishing a presence in India.

o For instance, Kutwal Foods Pvt Ltd, launched its own stores called My Urja, which stock the company’s

entire range of products. This includes processed liquid milk, milk products, soft drinks and packaged

drinking water under the brand name Urja, Long life/UHT milk is increasing in popularity in urban India

o Consumption of long-life/UHT milk has gained popularity amongst educated urban families where

family members do not have time to buy milk daily and instead purchase their groceries, including milk,

at the weekend. To exploit this growing preference, many domestic manufacturers, including Mahanand

Dairy, a venture of Maharashtra Rajya Sahakari Dudh Mahasangh, Maryadit (MRSDMM), have

introduced UHT milk in brick liquid carton packaging. Parag Milk Foods Pvt Ltd launched Topp-Up, a

brand of energy milk or flavoured milk with an innovative packaging with a ring crown pull cap, so an

opener is not required

o The introduction of smaller pack sizes to maintain affordability and allow consumers to try products was

apparent in various categories, like breakfast cereals, noodles and yoghurt

o The average unit price of nutrition/staples products increased by 6% in 2013. Cooperatives like The

Karnataka Milk Federation increased the price of milk due to rises in utility costs – including those of

diesel and petrol. The prices of milk pouch film, furnace oil and other consumables required for milk

processing and packing also increased, leading to a rise in production costs for milk and milk

production

Source: MOFPI

o Impulse and indulgence products increases by 22% in current value terms to reach Rs505 billion

in 2013

o Factors like irregular eating times, long breaks between lunch and dinner, and the increasing

influence of Western culture, including some unhealthy eating habits, are driving sales of many

categories, like snacks, cakes and ice cream

o Consumers are slowly switching from unbranded to branded products

o Sweet and savoury snacks sees growth of 25%, to Rs111 million

o The average unit price increases by 10% in 2013, due to rising input costs

o Britannia Industries Ltd leads the impulse and indulgence category, with a value share of 13% in

2013

o Impulse and indulgence products is expected to increase by a constant value CAGR of 10% over

the next five years

o Snacks which previously were prepared at home are now sold in branded format, tapping into

consumers’ paucity of time.

o Chocolate confectionery witnessed strong growth of 28% in 2013

o Chocolate confectionery is growing as consumption is expanding from children to adults. Adult

consumers’ craving for luxury and premium chocolates

o Packaged/industrial pastries witnessed the slowest growth in 2013, of 12%. This was significantly

lower than the 18% growth registered in 2012

o Consumers have become more conscious about their spending and have reduced the

consumption of packaged industrial pastries, favouring alternatives such as snacks and cakes

instead

o Also, as there are only a limited number of national players in this market, consumers did not

have options like discounts, freebies and extras that could drive sales

Past sales of impulse and

indulgence products by category

Forecasted sales of impulse and

indulgence products by category

o Registered retail value growth of 21% in 2013 to reach Rs 405 billion

o Olive oil with retail value growth of 37% in 2013 is driving fastest growth

o Ruchi Soya Industries Ltd with retail value share of 17% continues to be the category leader within oils and

fats in 2013

o The growing health and wellness trend drives Indian consumers to trade up to premium oils and fats

o There is still no mass awareness about the health risks associated with trans fats in India and products

which possess trans fats are still widely available across the country. The prices for such products is low and

the demand remains high due to lack of awareness in rural areas

o The Indian oils and fats category is mainly characterised by local players, such as Ruchi Soya Industries ,

Adani Wilmar , Gujarat Co-operative Milk Marketing Federation and KS Oils

o The growing health and wellness trend is expected to continue over the forecast period and will encourage

manufacturers to launch health-orientated oil and fats products.

o Oils and fats is expected to grow by a constant value CAGR of 9% over the next 5 years

Past sales of Oil and

Fats by category

Forecasted sales of Oil

and Fats by category

Distribution of Oil and Fats by Format

o In 2013, meal solutions reaches sales of Rs86 billion, recording current value growth of 17%

o Frozen processed food sees the fastest growth

o Mahashian Di Hatti Pvt Ltd led sales of meal solutions in 2013, with an 11% value share. The company is a leading player in dry sauces/powder mixes in India. MDH, its flagship brand, has

been backed by high profile advertising and a strong distribution network. Its products Chunky

Chaat Masala, Kitchen King Masala and Chana Masala have gained significant popularity over

the years

o Most sales of meal solutions in India are accounted for by economy and standard brands

o Soup brands such as Knorr, Maggi and Ching’s Secret straddle the economy and standard

segments. Imported brands, such as Campbell’s, Batchelor’s and Continental, offer more

premium priced products, but awareness of these brands is low, due to a lack of publicity

o Private label products are strengthening their presence in this category. Many private label

ranges, like Easy Life, Feasters, Nilgiris, Reliance Select 100%, Spencer’s, Tasty Treat and Tasty

Wonders, have a strong presence in sauces and condiments

Sales of Meal Solutions by Category: % Value Growth 2008-2013

Company Shares of Meal Solution: % Value 2009-2013

o Retailers have moved beyond just basic products, like herbs/spices or pickles, to include products

like mayonnaise and cooking pastes

o However, private label continued to face strong competition from established brands, which enjoy

strong brand loyalty.

o Sales of frozen processed food, canned preserved food, ready meals and soups are still very

restricted to urban households, but with manufacturers launching single-use packs at lower price

points, and strengthening their presence in rural areas, sales will see a rapid increase.

o The cold chain in India is in the nascent stages of development

o There are very few specialised distribution companies providing refrigerated transport and warehousing for perishable produce/processed food products. The development of cold chain

facilities has been hampered high costs and the difficulty of guaranteeing a continuous supply of

electricity. Lack of such infrastructural facilities threatens growth.

o Meal solutions are led mainly by domestic Indian players, such as Mahashian Di Hatti Pvt Ltd,

Eastern Condiments, Venky’s and Kohinoor Foods. The international player McCain Foods

performs strongly in frozen ready meals in terms of snacking offerings, whilst MTR Foods Ltd

does well in vegetarian ready meals.

o The Indian frozen processed category is dominated by domestic players, such as Mother Dairy

Fruit & Vegetable, Al Kabeer Exports, Innovative Foods, Venky's, Suguna Poultry Products,

Darshan Foods, and Godrej Agrovet

o McCain Foods was the only prominent international player within frozen foods in the country and

is set to hold a retail value share of 5% in 2013

o Furthermore there is little price differential between the leading brands resulting in intense

competition

o Most of the brands available are priced at almost the same level and there is no differential

between premium and mass brands

o Frozen processed food is expected to grow by a CAGR of 11% in constant value terms over the

forecast period

o Growth in modern retail chains, increased refrigeration of small retailers and rural households,

growing awareness of frozen food products and the progression of fast food chains over the

forecast period are expected to drive sales of frozen food.

Brand Shares of Frozen Processed Food: % Value 2010-2013

o The bulk of brands in nutrition/staples continue to be standard in terms of pricing; however, many

companies have introduced premium products focused on health and wellness, which are priced

higher than standard brands

o In addition, private label made a foray into nutrition/staples products such as pasta and dairy in

2013

o Sales of nutrition/staples are expected to increase by a constant value CAGR of 8% over the

forecast period

o Growth during the next five years will be mainly driven by consumers switching from loose milk to

fresh packaged milk. Manufacturers are likely to undertake awareness campaigns to educate

consumers about the health benefits associated with fresh packaged milk

o Since certain nutrition/staple products, such as meal replacements, continue to be niche, it would

need a strong advertising push to generate product awareness amongst consumers

o Noodles are still not considered a healthy meal option in India. According to a study by

Ahmedabad-based Consumer Education and Research Society conduced in October 2012,

which tested 15 noodles, the “health” claims of many brands are not true

Sales of Nutrition / Staples by Category: %

Value Growth 2008-2013

Company Shares of Nutrition / Staples by Category: %

Value Growth 2009-2013

o Drinking milk products continued to be fragmented with various cooperatives maintaining the lead

in their respective regions, mainly. Most companies continued to maintain share with Karnataka

Milk Federation witnessing a small rise in value share in 2013

o Since Indian consumers continued to consume fresh milk largely, domestic manufacturers with

strong local distribution channels and strong local presence, continued to rule.

o The presence of private label products remained negligible in drinking milk products in 2013.

o Drinking milk products is likely to see a constant value CAGR of 5% over the forecast period.

o Flavoured milk drinks is likely to continue growing at the fastest rate over the forecast period with

consumers likely to become more health conscious

o Other dairy continued to witness limited growth due to the low popularity of products, including

cream, coffee whiteners, and condensed milk

o Since most of the products including cream and condensed milk are bought occasionally, other

dairy is not likely to show strong growth over the forecast period. Other dairy is likely to see a

constant value CAGR of 2% over the forecast period

Distribution of Drinking Milk Products by Format: % Value 2008-2013

o The Indian baked goods category is dominated by unorganised small local players catering to

consumer needs locally. Domestic manufacturers characterise the Indian baked goods category

with select organised players in 2013

o The probability of multinationals entering the category in the forecast period is low due to its

fragmented nature

o Britannia Industries with an expected retail value share of 9% of the baked goods category

proved to be the most successful player in 2013

o The company has been expanding its presence and baked goods range aggressively. The

company now offers a range of premium and luxury cakes to consumers

o Baked goods is expected to grow by a constant value CAGR of 2% over the next five years

o Urban regions of India witnessed rapid growth and expansion of modern retail outlets in 2013.

However, modern retail outlets such as hypermarkets and supermarkets continued to remain low

compared to the overall retail scenario in India

Distribution of Baked Goods by Format: % Value Growth 2008-2013

Brand Shares of Baked Goods: % Value 2010-2013

o Hygiene, e.g. measured by number of micro-organisms per mL of finished

product

o Energy efficiency measured e.g. by “ton of steam per ton of sugar produced”

o Minimization of waste, measured e.g. by “percentage of peeling loss during

the peeling of potatoes”

o Labour used, measured e.g. by “number of working hours per ton of finished

product”

o Minimization of cleaning stops measured e.g. by “number of hours between

cleaning stops”

o Total group sales

o Net Profit

o Total water withdrawal

o Total number of significant product recalls or incidents of non-compliance

o Nutrition sales

o Products meeting or exceeding Nutritional Foundation profiling criteria (as % of total sales)

o Products with increase in nutritious ingredients or essential nutrients

o Products with reduction of sodium, sugars, trans-fatty acids, total fat or artificial colourings

o Products containing Branded Active Benefits (sales, CHF million)

o Products featuring Nestlé Nutritional Compass labelling (% of sales worldwide)

o Products with specific portion guidance (sales, CHF million)

o Popularly Positioned Products (sales, CHF million)

o Total workforce (number of employees)

o Total rate of new employee hires (%)

o Total rate of employee turnover(%)

o Lost-time injuries among employees and on-site contractors (per million hours worked)

o Total recordable injuries and illnesses among employees and on-site contractors (per million hours worked)

o Fatalities of employees and on-site contractors

o Average hours of training per year per employee per category(p)

o Leadership positions held by women(%)

o Local management committee members native to country in developing countries (%)

o New products introduced per quarter

o % first time right

o Standardization of products

o Inventory stock-out value

o % of Damaged goods

o Transportation cost as a percentage of revenue

o Average order-to-shipment lead time

o Total production volume (million tonnes)

o Materials

o Raw materials used (million tonnes)

o Materials for packaging purposes (million tonnes)

o Packaging source optimisation (kilotonnes saved)

o Energy

o Total on-site energy consumption (petajoules)

o Total direct energy consumption (petajoules)

o Total indirect energy consumption (petajoules)

o Biodiversity

o Total size of manufacturing sites located in protected areas (hectares)

o Emissions, effluents and waste o Direct greenhouse gas emissions (million tonnes CO2eq)

o Indirect greenhouse gas emissions((million tonnes CO2)

o Quality of water discharged (average mg COD/litre)

o By-products (kg per tonne product)

o Waste for disposal (kg per tonne product)

o Environmental sustainability governance

o Manufacturing sites certified

o Time-to-market for new food products

o Packaged foods export

o More retail penetration at rural markets

o Packaged food exports

o Sales forecast fidelity

o Region-wise and period-wise sales

o Sales by executives

o Days sales outstanding

To achieve this predicted annual growth rate of 14%, industry players must work hard to engage with the Indian

consumer and create a suitable environment for growth. Here we have outlined some of the critical factors which

will affect profitability and outcomes for companies.

o Success Factor 1: Secure quality input

Processed food demand is racing ahead of India’s agricultural capacity and is beginning to cause shortages.

Following the example of market leaders such as Lay's, Amul and ITC, companies must pay attention to the

back end of production, working intensively with each stage of the value chain.

Training farmers to improve produce yields, through contract farming, better seeds or improved farming

methods

Supporting research to improve produce

Investing in infrastructure, such as transport or processing machinery

Working with vendors, encouraging them to promote certain products

Educating consumers about the benefits of packaged food, such as improved product quality, variety and

health

o Success Factor 2: Connect with young Indian consumers

India's population has a median age of 25.5 years , with young consumers more likely to purchase packaged

food. Cadbury, Lay's and Pepsi all provide good examples of sustained and targeted marketing campaigns. They

have also introduced country-specific products, helping to establish their brands as in tune with the tastes of

India's youth market.

o Success Factor 3: : Focus on value-added products

Moving beyond basic offerings allows companies to increase market segmentation and penetration. Enriching

products with nutrients, offering low-fat alternatives or promoting low-sugar options for diabetics are examples

of ways in which brands increase market share by catering to the health-conscious. In the same way, luxury

products (such as Cadbury's Silk range) sell at a premium and yield higher profit margin. In beverages, premium

spirits account for just 8% of category share but provide 35% of industry profits .

o Success Factor 4: Select the right categories

The market for packaged foods is evolving and companies must choose their entry point based on two criteria:

whether the category is large and growing (therefore open to scalability); and / or whether it is not mature

(therefore open to innovation and new brand competitors).

To take biscuits as an example: savoury snacks are a rapidly-evolving category; whereas mass sweet biscuits

are a mature subsection of the market. Operators in this subcategory would need greatly different products and

marketing campaigns to achieve growth.

o Success Factor 5: Do what it takes to be in the Top 3

India's unique retail environment, with crowded sales channels and little direct interaction between consumers

and products, means that brands must work hard for recognition. However, doing so is critical. Companies

must choose carefully where they enter the market and do so based upon their strengths. Sustained, profitable

growth in packaged foods is not easy, and in India it's particularly critical to establish a leadership position.

Making a profit in India's packaged foods market may not be easy. However, the current moment

represents a tantalizing opportunity that food companies cannot afford to ignore.

To succeed in this sector, participants must plan and act smartly. But they must also bear in

mind the existence of multiple stakeholders.

Bain & Company's value-web, in the next slide, demonstrates the network of relationships and

dependencies that form the packaged foods sector. In order to create new markets or win in

existing ones, companies must recognize these dependencies and work productively with each

element, as several leading players have already done.

Each player in the value-web can benefit from the expansion of India's packaged food industry,

and each has a part to play in promoting expansion.

The sector as we see it is at an exciting point of inflection, with accelerated growth beckoning

around the corner. How sharp that inflection point will be depends, to some extent, on

developments within the policy and macroeconomic context. But for companies which

understand this context, and are prepared and able to seize the opportunities presented by

India's new markets, the prospects are bright.

o Ability to establish forward and backward linkages through contract farming, cold chains, and

a strong distribution network

o Use of modern technology in Fruits & Vegetables processing rather than manual methods

o Using hybrid seeds to improve yields

o Large number of innovative products and branding

o Ability to increasing scale of output

o Wide product portfolio of high-value products such as yoghurt, sweets

o Ability to tap into export markets

o Developing a portfolio of milk-based products

o Ensuring quality and sustained branding

o Ability to tap into export growth in the value-added segment

o Poor supply chain facilities and cold storage

o Continuing preference for fresh food among consumers

o Poor yield of crops and milch animals

o Approximately 35% of agricultural produce is wasted due to poor cold chain linkages during

storage and transportation

o International trade rules and increasing protectionism in export markets

o Poor performance of the agricultural/primary sector

o Low productivity in milch animals despite India having the largest bovine population in the

world (i.e. 250 million)

o Lack of scale in the industry despite of success stories such as AMUL

o Quality and hygiene is low in street-side wet markets

o Imperfect slaughtering

o High supply chain costs as feed constitutes 60% of total broiler costs

o Primitive rearing techniques

o Unregulated slaughter facilities

The country has only 3,600 slaughterhouses, 9 modern abattoirs,171 meat processing units

and a limited number of pork-processing units

o Abundant availability of raw material

o Priority sector status for agro-processing given by the central Government

o Vast network of manufacturing facilities all over the country

o Vast domestic market

o Social acceptability of agro-processing as important area and support from the central

government.

o Low availability of adequate infrastructural facilities

o Lack of adequate quality control & testing methods as per international standards

o Inefficient supply chain due to a large number of intermediaries

o High requirement of working capital.

o Inadequately developed linkages between R&D labs and industry.

o Seasonality of raw material

o Low availability of new reliable and better accuracy instruments and equipments

o Inadequate automation w.r.t. information management.

o Remuneration less attractive for talent in comparison to contemporary disciplines.

o Large crop and material base offering a vast potential for agro processing activities

o Setting of SEZ/AEZ and food parks for providing added incentive to develop greenfield projects

o Rising income levels and changing consumption patterns

o Favourable demographic profile and changing lifestyles

o Integration of development in contemporary technologies such as electronics, material science,

bio-technology etc. offer vast scope for rapid improvement and progress

o Opening of global markets may lead to export of our developed technologies and facilitate

generation of additional income and employment opportunities.

o Affordability and cultural preferences of fresh food

o High inventory carrying cost

o High taxation

o High packaging cost

o Competition from global players

o Loss of trained manpower to other industries and other professions due to better working

conditions prevailing there may lead to further shortage of manpower.

o Rapid developments in contemporary and requirements of the industry may lead to fast

obsolescence.

o Internal Political/Economic Events

o Increasing economic disparities among regions are emerging as a political risk capable of provoking serious socio-

political tensions that could lead to localized violence from time to time

o The states likely to be advancing economically are:Gujarat, Haryana, Kerala, Maharashtra, Punjab and Tamil

Nadu. Those likely to be lagging economically are: Assam, Bihar, Madhya Pradesh, Orissa, Rajasthan and Uttar

Pradesh

o External Political/Economic Events

o Any outbreak of hostilities between India and its neighbours could disrupt trade and negatively affect the solvency

of some importers.

o India could benefit greatly from free trade

o Policies

o A number of policy initiatives have been taken from time to time to promote growth of the processed food sector in

the country. Some of these are:

o Most of the processed food items have been exempted from the purview of licensing under the Industries

(Development & Regulation) Act, 1951, except items reserved for small-scale sector and alcoholic

beverages.

o Food processing industries were included in the list of priority sector for bank lending in 1999.

o Automatic approval for foreign equity upto 100% is available for most of the processed food items excepting

alcohol and beer and those reserved for small scale sector subject to certain conditions.

o Developmental

o Assistance under various plan schemes.

o Widening the R&D base in food processing by involvement of various R&Di nstitutes and support to various R&D

activities.

o Human Resource Development to meet the growing requirement of managers, entrepreneurs and skilled workers

in the food processing industry.

o Assistance for setting up analytical and testing laboratories, active participation in the laying down of food

standards and their harmonization with the international standards.

o Promotional

o In order to create awareness about the potential and prospect of food processing industries in the country, this

Ministry provides,

o a) Assistance for organizing workshops, seminars, exhibitions and fairs.

o b) Assistance for studies/surveys etc.

o c) Publications and films

o ·Regulatory

o Implementation of Fruit Products Order (FPO), 1955.

o Implementation of Meat Food Product Order, 1973.

o Land and Property laws

oThere is a shortage of good quality space and rents are high for what is available.

o Only Indians can own property in India, which complimenting the restrictions placed on FDI, restrict the entry of

foreign players.

oThe initial urban planning of cities was done with smaller plots in mind which along with rigid building and zoning laws

make it difficult for procurement of retail space. \

oThe urban land ceiling act and rent control acts have distorted property markets in cities

o Labour Laws

oThe labour laws instituted to protect store workers are not flexible enough to support the modern formats of retailing.

These rigidities in the law constrain the operations of modern retail outlets. Working hours are restricted, with shops

required to close one day of the week and the hiring of part-time employees is difficult, however, in Bangalore, the State

Government has permitted flexibility in the use of labour without doing away with the associated benefits accruing to it.

o Taxes

o Corporation tax is 38% and this would be even higher at 45% for a foreign business.

oEven essential basic foodstuffs are taxed (8% on milk).

o The varying sales tax rate across states make supply chain management an even more difficult task for retailers

o With the expected introduction of Value Added Tax (VAT) in April 2005, some of the sales tax anamolies in the supply

chain could get correct over a period of time.

In addition to the general legal requirements, there are a few legal requirements that are specific to Food Processing

Industries. A food processing enterprise has to comply with several compulsory legal requirements. Implementation of these

norms with regard to Small and Medium Enterprises

o Legal Requirements

o a). Prevention of Food Adulteration Act (1954

o Milk and Milk Products Order (MMPO.

o c.) Fruit Products Order (1955.

o d). Standard of Weights and Measures (Packaged Commodities) Rules, 1977

o e.) Export (Quality Control and Inspection) Act, 1963

o f). Voluntary Standards: are regulated by organisations involved with voluntary standardisation and certificates

systems concerning quality parameters in food. g). Oils, Deoiled Meal and Edible Flour Control Order 1967 and

Vegetables Products

o Control Order, 1976

o h). Meat Food Products Control Order, 1973

o Restriction on FDI

o A strong FDI presence in food processing sector is expected to not only boost the retail scenario, but also act as a

driving force in attracting FDI in upstream activities as well. This will be more prominent in food processing and

packaging industries because many large retail chains also promote their own brands by way of backward

integration/contract manufacturing.

o The challenges to food processing are socio economic environment, subsistence agriculture,

fragmented value chains and lack of infrastructure for post harvest management and

processing. Some issues are country specific: role of federal and state government, policies

regarding marketing of agriculture produce, and food safety regulations

o Sub-optimal growth of the food processing industry can be attributed to the vicious circle of high

unit cost low demand, low capacity utilization again leading to high unit cost

o Affordability is also a major issue in the domestic market

o Price differential between fresh and processed food in India is very high relative to convenience,

hygiene and health values of the processed food. In the developed countries processed and

fresh food compare well in prices.

o There is need for working out synergy between business and environment for sustainable

development. The Govt. will bring together environmentalists, industrialists, policy

makers and NGOs at State

o The Govt. will compliment the efforts of various other Govt. departments, Public Sector, Private

Sector, Industry associations, Cooperatives, Consumer action groups, NGO etc. to provide a

healthy, and enabling environment.

o The Govt. recognizes the need to achieve these objectives by way of removal of restrictions,

private sector participation, enhanced Market opportunities, rationalization of tax structure and

positive interface with the industry

o Rapid transformation in the lifestyle of Indians, particularly those living in urban India,

has resulted in dramatic increase in the demand for processed food.The main reason why

processed food is luring the urban Indians is the convenience that it offers to cooking, as they

don't need to spend hours in kitchen to get that appetizing food

o Increase in overseas travel and the presence of foreign media in the country has resulted in

more Indians opting for processed food. For instance, in 2007, above 5Million Indians had

traveled abroad and the number is likely to rise by 15% to 20% every year

o Also, it's likely to double in the five years to come. These trends entail significant growth

potential for the food processing industry in future and, as a result, add to the attractiveness of

investment in this sector

o The demographic trend and lifestyle patterns, of the society that a retailer intends to

serve, decide the retailer’s strategy. Traditionally, children seldom accompanied their

parents while grocery food shopping

o Apart from quality and range of products, value for money and attractive displays, the human

touch has a vital role to play

o There is also emphasis on schemes and promotions, which, as the study ratifies, do pull

customers. Further the trend is towards more convenience and flexibility in terms of exchange/

return policies, which play a vital role in encouraging the purchase

o Smart, polite and courteous sales people might make all the difference for a

store, which is like any other in terms of its Product offerings

o The computerization of the various operations in a retail store, including inventory management,

billing and payments as well as database (of customers) management,

widespread use of bar coding, point -of-sale terminals and Management Information

System has changed the face of retailing drastically demographic trend and lifestyle patterns, of

the society that a retailer intends to serve, decide the retailer’s strategy. Traditionally, children

seldom accompanied their parents while grocery food shopping

o Apart from providing the retailers with better and timelier information about their operations, the

technology also does the job of preventing theft, promoting the store's goods and creating a

better shopping atmosphere

o Apart from providing the retailers with better and timelier information about their operations, the

technology also does the job of preventing theft, promoting the store's goods and creating a

better shopping atmosphere

o They make the customer's life a lot easier by facilitating the use of developments like credit

cards. Toll free 800 numbers have brought about a revolution in consumer's ordering and

feedback mechanisms

o Emerging technologies will also facilitate just-in-time management of certain products within the

store. These trends are already visible in the music and greeting card industries.

o Advancement in food technology can play an important role in not only harmonizing quality

norms, but also by developing good manufacturing practices, including 106conformity to

traceability norms hazard analysis at critical control points (HACCP).

o Codex has also incorporated HACCP system for identifying risk and their control. HACCP also

covers pathogenic bacteria also. Though the quality norms of these global bodies are accepted

as base for reference, countries are allowed to set more stringent norms

PORTER’S FIVE FORCES – WHAT ARE THEY ABOUT?

If anyone looks as if they’re making a sustained profit, new competitors can come into the

industry easily, reducing profits Profitable markets that yield high returns will draw firms. The

results is many new entrants, and decrease profitability. Unless the entry of new firms can

be blocked by incumbents, the profit rate will fall towards a competitive level (perfect

competition)

· Capital Requirements (low)

oThe capital costs of getting established in an industry can be reduce because of the

government subsidies provided to food processing sector.

oFinancial disaster for most participants is that the initial setup costs of new ventures

were typically very low

oStartup costs are so low that individual, self-financing entrepreneurs can enter. For

example, in mineral water pouch business, costs for a company are around Rs

350,000 and reaming Rs 750,000 is subsidies by Government

· Economies of Scale (low)

o In industries that are capital or research or advertising intensive, efficiency requires

large scale operation

o The problem for new entrants is that they are faced with the choice of either entering on

a small scale and accepting high unit costs, or entering on a large scale and running

the risk of underutilized capacity while they build up sales volume

o Segment of the market for food processing Industry is very narrowly define so potential

customer are very few that’s why companies are not able to achieve economies of

scales

· Absolute Cost Advantages (high)

o Apart from economies of scale, established firms may have a cost advantage over

entrants simply because they entered earlier. Absolute cost advantages often result

from the acquisition or alliances of low-cost sources of raw materials

·Product Differentiation (high)

o In an industry where products are differentiated, established firms possess the

advantages of brand recognition and customer loyalty

o New entrants to such markets must spend disproportionately heavily on advertising and

promotion to gain levels of brand awareness and brand goodwill similar to that of

established companies

o Alternatively, the new entrant can accept a niche position in the market or can seek to

compete by cutting price

·

For most industries, this is the major determinant of the competitiveness of the industry.

Sometimes rivals compete aggressively and sometimes rivals compete in non-price

dimensions such as innovation, marketing, etc. For most industries, the major determinant

of the overall state of competition and the general level of profitability is competition among

the firms within the industry

· Concentration(high)

o Seller concentration refers to the number and size distribution of firms competing within a market. It is

most commonly measured by the concentration ratio: the combined market share of the leading

producers

o Where a market is dominated by a small group of leading companies (an oligopoly), price competition

may also be restrained, either by outright collusion, or more commonly through “parallelism” of pricing

decisions

o In markets dominated by two companies, such as soft drinks (Coke and Pepsi), prices tend to be

similar and competition focuses on advertising, promotion, and product development

· Diversity of Competitors (low)

o The extent to which a group of firms can avoid price competition in favor of collusive

pricing practices depends upon how similar they are in terms of origins, objectives,

costs, and strategies

o In food processing industry it is very low here firm always try to compete rival strategies

and there product prices e.g. coke and Pepsi, magi and top Ramon ,Amul ice cream

and havmor ice cream etc

· Product Differentiation

o The more similar the offerings among rival firms, the more willing customers are to

substitute and the greater the incentive for firms to cut prices to increase sales

o Commodity industries such as food processing agriculture, mining, and petrochemicals

tend to be plagued by price wars and low profits

By contrast, in industries where products are highly differentiated (perfumes,

pharmaceuticals, restaurants, management consulting services), price competition tends to

be weak, even though there may be many firms competing

· Excess Capacity and Exit Barriers

Why does industry profitability tend to fall so drastically during periods of recession?

o The key is the balance between demand and capacity. Unused capacity encourages

firms to offer price cuts to attract new business in order to spread fixed costs over a

greater sales volume

o Excess capacity may be cyclical (e.g. the boom–bust cycle in the semiconductor

industry); it may also be part of a structural problem resulting from overinvestment and

declining demand. In these latter situations, the key issue is whether excess capacity

will leave the industry

o Barriers to exit are costs associated with capacity leaving an industry. Where resources

are durable and specialized

o The ability of customers to put the firm under pressure and it also affects the customer's sensitivity to

price changes. “Customer has enough option to switch so they have less bargaining power.”

o The firms in an industry operate in two types of markets: in the markets for inputs and the

o markets for outputs. In input markets firms purchase raw materials, components, and

o financial and labor services. In the markets for outputs firms sell their goods and services

o to customers (who may be distributors, consumers, or other manufacturers)

RELATIVE BARGAINING POWER (HIGH)

o Bargaining power rests, ultimately, on refusal to deal with the other party. The balance of power

between the two parties to a transaction depends on the credibility and effectiveness with which each

makes this threat

o The key issue is the relative cost that each party sustains as a result of the transaction not being

consummated

Suppliers are not Powerful because in food processing industry

o Credible forward integration threat by suppliers

o Suppliers concentrated

o Significant cost to switch suppliers

o Customers Powerful

Suppliers are Weak because in food processing industry

o Many competitive suppliers - product is standardized

o Purchase commodity products

o Credible backward integration threat by purchasers

o Concentrated purchasers

o Customers Weak

In Porter's model, substitute products refer to products in other industries. To the economist, a threat of

substitutes exists when a product's demand is affected by the price change of a substitute product.

A product's price elasticity is affected by substitute products - as more substitutes become available, the

demand becomes more elastic since customers have more alternatives. A close substitute product

constrains the ability of firms in an industry to raise prices.

The existence of close substitute products increases the propensity of customers to switch to alternatives

in response to price increases (high elasticity of demand).

· buyer propensity to substitute (low)

· relative price performance of substitutes(low)

· buyer switching costs (high)

Pressure from Substitutes Emerges Mainly From Two Factors

1. Switching costs for customers to the substitute.

2. Buyer willingness to search out for substitutes.

Substitution of need

We take switching from one product (e.g. natural drink of Dabur) to another (fresh juice from

local vendor or prepared at home). In this case, the buyers might be looking out for

freshness and might not mind the nominal switching costs Food processing Industry will

definitely remain, in one form or the other, as long as the manufacturers manufacture and

consumers consume.

Food processing industry does not seem to become extinct even in the future. The issue

that remains to be addressed is just - what forms it keeps evolving into.

The Substitutes of food processing industry are fresh fruits and vegetables and food as a

raw material , but they are yet very well developed in India, so their threat are comparatively

very high but food processing industry break the boundaries of food product availability in

certain season and area that is why food industry will sustain for longer term.

Competitive environment is unattractive from the standpoint of earning good profits when

o Rivalry is vigorous

o Entry barriers are low and entry is likely

o Competition from substitutes is strong

o Suppliers and customers have considerable bargaining power

Competitive environment is ideal from a profit-making standpoint when

o Rivalry is moderate

o Entry barriers are high and no firm is likely to enter

o Good substitutes do not exist

o Suppliers and customers are in a weak bargaining position

But food processing industry is little bit attractive but not ideal, it gives considerable profit

Because of the following point

o Rivalry is moderate

o Entry barriers are low and firm is likely to enter

o Good have some substitutes but up to certain extant

o Suppliers and customers are in a weak bargaining position

The four major segments of the international market are:

o Countries like USA, Japan and Australia demand highly organic

and functional foods whose preparation involves high technology

o Quality and hygiene factors are the drivers in the Eastern

European countries

o Developing countries like India, China and Latin America focus

primarily on snacks, prepared meals and processed meat

o Carbohydrates still constitute the major food in the least

developed markets. Most of the least developed countries are net importers of food

o Shift toward consumption of higher value food products across all income levels

As income grows, consumers in lower income countries shift their food purchases away

from carbohydrate-rich staple foods toward more expensive sources of calories, such as

meat and dairy products.

o The Emergence of the ‘IndieWoman’

These women are 27 and older, live alone and have no children. When they are not busy

being social or growing their careers, they also enjoy shopping and spend $50 billion on

food and beverages each year.

o Healthy Snacking The association between daily snacking frequency and Healthy Eating Index shows that

as snacking has increased, and so has individuals' overall diet quality. Healthy options for

consumers are on the rise with nearly 60 percent of all snack foods now positioned as

better for you.

o Click to Cook

Consumers continue to rely on technology for the sake of convenience and saving time.

One third of consumers reported using their mobile phone while at the grocery store,

most often to refer to shopping lists and recipes.

o Supermarkets —The New Culinary Schools

Supermarkets are becoming the center of communities. Grocery stores are beginning to

offer services such as "community cooking centers" where shoppers can collaborate and

learn from each other their careers, they also enjoy shopping and spend $50 billion on

food and beverages each year.

o Cause Initiatives

62 percent of consumers appreciate and want to support companies that donate to

important social causes and thus fulfil a greater purpose by serving the larger community.

o Retailer Becomes the Brand

Consumers have become increasingly loyal to their preferred retailer and its products. 53

percent of consumers shop at a particular retailer because it has good private brand products.

o New Way to Start the Day

Breakfast remains one of the most important meals of the day, with 74 percent reporting

that they eat breakfast regularly at home. Consumers look to add more protein like eggs,

meats, and Greek yogurt, as well as whole grain products, for their breakfast to live a

healthy lifestyle without compromising taste and indulgence.

o Packaging

Packaging of food is evolving where canned soups shifted to carton packaging with more

than 58 percent of all broth products transitioning into cartons. Packaging to become

‘touch’ sensitive to reveal additional information is the new demand of the consumer.

o Millennials Make the Supermarket Social

The millennial generation's fascination with social media begins to overflow into other

parts of their lives including the supermarket. In fact, 57 percent of Pinterest, the

pinboard-style photo-sharing web site, is made of food related content with 33 percent of

Pinterest users saying they have purchased food or cooking items after seeing them on

site.

o International Restaurant Flavors At Home

The surge of Latino and Asian populations, along with growing consumer interest in

adding more flavour and variety to mealtime, has led to more growth opportunities for

South American, Indian and Middle Eastern cuisines in processed food.

o Packaging for Convenience

• Longer working hours and the increasing share of working women have driven

consumers to seek convenient/easy-to use packages, including spouted beverage

pouches, easy open end cans, and easy dispensing laundry care closures.

• This has fuelled demand for small packs of liquid cartons, PET bottles, metal beverage cans, as well as thin-walled plastic containers.

• A unique technological development for ready meals. With this trend, the packaging

processes are expected to move up the technology ladder, such as methods for hot

filling, aseptic packaging and form-fill seal in flexible packaging.

o Spiralling material costs

Although the market has been expanding, rising packaging prices in 2010, especially for

kraft paper, aluminium foil and plastics (accentuated by the surging crude oil prices), are

thinning margins of consumer goods companies.

o Capitalising on flexibility

• A big chunk of Indian consumers with low purchasing power continue to fuel the

demand for low unit prices, hence the prevalence of small sized packs

• Energised by the sachet success story, new categories like biscuits and crisps have moved to mini packs too.

o Liquid potential

• Liquid cartons has seen strong growth considering the huge marketing effort being

made by Tetra Pak for this pack type and because its ambient shelf life is especially

suitable for retailing.

• Flexible packaging remains king, due to cost competitiveness but its biggest challenge

is the adverse impact on the environment created by its disposal.

o Organised retail design

• Shift from old-fashioned small scale retailing to organised large stores, product

manufacturers have had to modernise packs. Milk, for example, shifted from being sold

loose to flexible plastic pillow packs and now into premium liquid cartons.

• Brands and packers are paying greater attention to pack design in order to help

products break through shelf clutter

o Tighter Legislation

• Legislation has progressively tightened on flexible packaging to help reduce its

adverse environmental impact. Recycling initiatives have risen in tandem with rising packaging waste.

• Low cost manufacturing advantage and special technological capabilities, including

laminates/flexible packaging, flattened cans, closures and paperboard, will prove to

be unique competitive advantages.

o Government of India has allowed 100% FDI under automatic route in food processing

sector

o Government has made plan allocation of Rs 5990 crore to implement various schemes

for promotions and development of food processing sector

o Ministry of Food Processing Industries and ‘Invest India’ have entered into an agreement

for the setting up of an Investors' “Help Desk” for offering online support to investors, both

domestic and international, with regard to their queries, and guide them particularly at

the initial stage of setting up their units

o Government has set up National Institute for Food Technology Entrepreneurship &

Management to offer high quality educational research and management programme

specific to the food industry

o Ministry has launched a Centrally Sponsored Scheme namely, National Mission on Food

Processing during the 12th Plan to be implemented through State/UT Governments

o Income Tax Reduction of 100% of profit for five year and 25% of profits for the next five

years in case of new food processing industries

o Exemption limit of excise duty for Small Scale Industry raised from Rs.1 crore to Rs.1.5

crores Excise duty on reefer vans reduced from 16% to 8% and on dairy machinery has

been fully exempt for promotion of dairy processing industries. Excise duty on condensed

milk, ice cream, preparations of meat, fish and poultry, pectins, pasta and yeast, soya

and ready- to- eat packaged foods is fully exempt

o Custom duty reduced from 7.5% to 5% on food processing machinery and packaging

machinery from 15% to 5%

o Ministry of Food Processing Industry

o Food Corporation of India

o Food Safety and Standards Authority of India

o Ministry of Consumer Affairs, Food and Public Distribution

o National Food Processing Development Council

o Agriculture and Processed Food Products Export Development Authority

o Export Inspection Council

o The Bureau of International Standard

Multiple laws/regulations prescribe varied standards regarding food additives,

contaminants, food colours, preservatives and labelling. The food laws in India are

enforced by the Director General of Health Services, Ministry of Health and Family

Welfare, Government of India.

Laws applicable to Packaged Food Industry are:

o Prevention of Food Adulteration Act (PFA), 1954 and Rules (Ministry of Health &

Family Welfare)

o The Standards of Weights and Measures Act, 1976, and Standards of Weights and

Measures (Packaged Commodities) Rules, 1977

o Fruit Products Order (FPO), 1995

o Meat Food Products Order, 1973 (MFPO)

o Milk and Milk Products Order, 1992

o Edible Oils Packaging, 1998

o Food and Safety Standards Act, 2006 (FSSA)

The Prevention of Food Adulteration Act 1954 was enacted by Central Government to

strengthen the system for preventing adulteration in articles of food. Under Section 23 of the

Act, the responsibility of implementation of PFA vests in State Government and Union

Territories. Each State Government and Union Territory has created its own structure for

implementation of the Act.

Objective: o To protect the public from poisonous and harmful foods

o To prevent the sale of substandard foods

o To protect the interests of the consumers by eliminating fraudulent practices

Salient Features of the Act include:

o Concept of Adulteration

o Prohibition of Sale of Certain Admixtures

o Procedure for Sampling and Analysis

o Penalties

o Important Miscellaneous Provisions

The Standard of Weights and Measures Act 1976 was the first enactment by which the uniform standard

weights and measures, based on the metric system was established.

o Salient Features of the Act include: o Establishment of weights and measures based on SI unit, as adopted by CGPM and recognized by OIM

o Prescription of specification of measuring instruments used in commercial transactions, industrial

production involved in public Health and Human Safety

o Regulation of inter-state trade and commerce in weights and measures and commodities sold, distributed,

or supplied

o Regulation of pre-packaged commodities sold or intended to be sold in the course of inter-state and

commerce

o Approval (before manufacture) of models of weights and measuring instrument intended to be

manufactured

o Control and regulation of import and export of weights and measures and commodities in packaged form

o Establishment of an Indian Institute of Legal Metrology to provide training to inspectors and others

o Inspection of weighing and measuring instruments during their use to prevent fraudulent practices

o Power to file a case in the court for prosecution

o Prescribe fee for services rendered

o Appeal Provisions

o Power to make rules for implementing the provisions of the Act

Fruit Products Order 1955, promulgated under Section 3 of the Essential Commodities Act -

1955, with an objective to manufacture fruit & vegetable products maintaining sanitary and hygienic conditions in the premises and quality standards laid down in the Order.

It is mandatory for all manufacturers of fruit and vegetable products including some non fruit

products like non fruit vinegar, syrup and sweetened aerated water to obtain a license under this

Order. Following minimum requirements are laid down in the Fruit Product Order for hygienic

production and quality standards:

o Location and surroundings of the factory

o Sanitary and hygienic conditions of premises

o Personnel hygiene

o Portability of water

o Machinery & Equipment with installed capacity

o Quality control facility & Technical staff

o Product Standards

o Limits for preservatives & other additives

Milk and Milk Products Sector is regulated by Milk and Milk Products Order 1992 (MMPO),

which is administered by the Department of Animal Husbandry and Dairying, under the Ministry

of Agriculture, Government of India.

Every person engaged in the business of handling, processing or manufacturing milk or milk

product shall, in regard to the items of milk and milk product manufactured and the packing,

marking and labeling of containers shall comply with the following:

o Product related to those items should be certified by the Officer authorized

o Where certificate is issued to any person in relation to any item, such person will be

authorized to place an emblem of certification on packaged goods

o The label on packaged good shall not contain any statement, claim, design or device which

is false or misleading in any manner concerning milk or milk product contained in the package

or about the quality or the nutritive value or of the place of origin of the same

o A holder or registration certificate shall not pack milk or any milk product other than those

processed or manufactured by him or those obtained from any other person holding a

registration certificate

Processing of Meat Products are licensed under Meat Food Products Order (MFPO) 1973 is implemented by

Ministry of Food Processing Industry. The order has undergone 11 amendments since its inception. Some of

them being:

o Inclusion of Fish and Fish Products

o Frozen Meat covered

o Chilled Meat producers can procure MFPO license on voluntary basis

Objectives of the MFPO, 1973:

o Regulate production and sale of meat food products through licensing of manufacturers

o Enforce sanitary and hygienic conditions prescribed for production of wholesome meat food products

o Exercise strict quality control at all stages of production of meat food products, fish products including chilled

poultry etc.

Under the provision of MFPO all manufacturers of meat food products engaged in the business of manufacturing,

packing, repacking, relabeling meat food products meant for sale are licensed but excluding those manufacturers

who manufactures such products for consumption on the spot. Depending on the source of meat the manufacturers are licensed under category A, B & C. Presently, 280-300 units that are licensed under MFPO

In order to ensure availability of safe and quality edible oils in packed form at pre-determined prices to the

consumers, the Central Govt. promulgated an Edible Oils Packaging (Regulation) Order, 1998 under the

Essential Commodities Act, 1955 to make packaging of edible oils, sold in retail, compulsory unless specifically

exempted by the concerned State Govt.

Salient Features of Act include:

o Edible oils including edible mustard oil will be allowed to be sold only in packed form from 15th December,

1998

o Packers will have to register themselves with a registering authority

o The packer will have to have his own analytical facilities or adequate arrangements for testing the samples of

edible oils to the satisfaction of the Government

o Only oils which conform to the standards of quality as specified in the Prevention of Food Adulteration Act,

1954 and Rules made there under will be allowed to be packed

o Each container or pack will have to show all relevant particulars so that the consumer is not misled, so also

the identity of the packer becomes clear

o Edible oils shall be packed in conformity with the Standards of Weights and Measures (Packaged

Commodities) Rules, 1977, and the Prevention of Food Adulteration Act, 1954 and Rules made there under

o The State Governments will have power to relax any requirement of the packaging order for meeting special

circumstances

The FSSA, 2006 aims to integrate the food safety laws in the country in order to scientifically and systematically

develop the food processing industry and shift from a regulatory regime to self-compliance. Thus introduce a

single statute relating to food.

Salient features of the Act:

o Defines the concept of ‘sub-standard’ and ‘unsafe’ food

o Emphasis on the need of risk assessment and not trade restriction

o Provisions relating to functional and novel food, packaging and labelling food

o Import of articles of food

o Responsibilities of food business operator

o Liability of manufacturers, packers, wholesalers, distributors and sellers

o Food recall procedures

o Graded penalties for offenses/violations

o Licensing and registration of food business

o Improvement notices

o Pasta Products

• Increased awareness of Italian cuisine, especially popular amongst vegetarians

• Current market size of imported pasta is 5200 tonnes with growth rate of 26%

• Top selling brands include Barilla and San Remo

o Sauces and Dressing

• Salad Dressing

• Sauce – Tomato, chili, soya, garlic sauces are popular. Famous brands include

Remia,Barilla, Prego and Tabasco

• Honey – growing at a 150% per annum. Famous brands include Wescobee Honey and

Airborne Honey

o Dairy Products

• Yoghurt

• Cheese – occupies 5% of market share. Famous brands include Laughing Cow and

Kraft

o Olive Oil

Imported Food Ingredients suppliers can enter the Indian

Market in 3 ways:

o Supply directly to local food producers

o Supply through local agents/distributors to local food

producers

o Start production/distribution in India

o Importers must furnish an Import Declaration in the prescribed Bill of Entry Format,

disclosing the value of the imported goods

o This must be accompanied by import licenses and phytosanitary certificates along with

other documentation like sale invoices, freight and insurance certificates

o The clearance of the imported products at the port of entry requires certification from the

Port Health Authority that the product conforms to the standards and regulations of PFA

o The customs experience may last between 1 day to 1 month depending on the product

and experience of the importer

o Incase of dispute or rejection of the consignment, the importer can file an appeal at the

Customs Office

o Foreign Direct Investment (FDI) is permissible for all the processed food products up to

100% on automatic route except for items reserved for Micro and Small Enterprises

(MSEs)

`

o For manufacture of items reserved for MSEs, FDI is permissible under automatic route

up to 24%. .

o If foreign investment is more than 24 per cent, it will require government route. Such an

undertaking would require Industrial License under Industries (Development &

Regulation), Act 1951.

Annual flow of Foreign Direct Investment (FDI) inflows to Processed Food sector in

the country during the last few years

Fixed Capital in Processed Food industry stood at Rs. 1,20,705 Crore growing at an AAGR of

21.66 per cent between 2006-2011

o Exports have shown

Average Annual Growth

Rate (AAGR) of 20.4 per

cent for five years ending

2012-13.

Source: DGCIS, Kolkata

o Export Inspection Council, the official certification body of the Government of India for

sound development of export trade through quality control and inspection

o Certification of quality, health and safety of food items for export by installation through

Food Safety Management Systems in the food processing units

o Issue of various types of certificates such as Health, Authority, non-GMO to exporters

under various schemes of export products

o Issue of certificates of origin to exporters under various preferential tariff schemes for

export products

o Laboratory Testing

Packaged food is expected to continue grow positively with

o Increasing urbanization

o Expansion of organized retail

o Rising incomes

o Changing lifestyles

o Local flavors in the portfolio

o Stronger distribution

These factors will further strengthen companies’ presence, particularly in the rural market.

o Several Government Plan Schemes provide financial assistance for setting up and

modernizing food processing units, creation of infrastructure, support for research and

development and human resource development in addition to other promotional measures

to encourage the growth of the processed food sector.

o The Confederation of Indian Industry (CII) has estimated that the food processing sector

has the potential of attracting US$ 33 billion of investment in 10 years and generate

employment of 9 million person-days.

o Though the industry is large in size, it is still at a nascent stage in terms of development of

the country's total agriculture and food produce, only 2 per cent is processed.

o The dairy sector has the highest percentage share of processed food, with 37 per cent of

total produce processed, of this only 15 per cent is processed by the organized sector.

o The sector is expected to attract phenomenal investments of about Rs 1,400 billion in the

next decade The food processing industry in the country is on track to ensure profitability in

the coming decades.

o Britannia India Ltd to increase its rural distribution reach for increasing consumption of food

products in rural markets.

o The company has plans to increase overall distribution focusing on rural coverage.

o Ice cream manufacturers are looking at the rural market but the largest bottle necks the

companies face is the lack of cold chain. Hence companies are looking at ways to work

around this.

o Example: Vadilal Industries Ltd has provided special deep freezers to distributors to ensure

that they can tap into the rural market.

o Private label producers such as Star Bazaar and Reliance Fresh are becoming prominent in

the landscape of packaged food.

o Many private label brands, including Tasty Treat from Food Bazaar, have captured a

significant value share.

o Trent Hypermarket also introduced a range of breakfast cereals in the flakes category.

o Newer products, such as frozen processed food, margarine, pasta, cheese, sauces and

spreads, which are finding increased use in foreign cuisines, are likely to experience a rise

in demand from foodservice operators.

o The increased presence of such products in foodservice is also likely to fuel growth in the

retail channel over the forecast period.

o Mrs Bector’s Food Specialities Pvt Ltd has plans to sell a controlling stake in the biscuit

business and is in talks with private equity investors. The firm has appointed Avendus

Capital to advise in the sale.

o Branded foodservice players such as Mrs Bector’s Food Specialities and Venky’s India are

likely to focus on quality in order to meet the quality standards set by international players.

o 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.

o 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).

o Britannia Industries Ltd has plans to enhance its position to become a comprehensive food

company, offering a range of products from bakery to dairy.

o Del Monte plans to enter the Indian snacks market with a range of fruit snacks in the

forecast period, targeting health conscious consumers.

o Sresta Natural Bioproducts, which owns the organic brand 24Mantra, has plans to introduce

new products, including a healthy snacking range.

o The Central Arecanut and Cocoa Marketing and Processing Cooperative Ltd (Campco) has

plans to launch Dairy Dream, a cocoa butter-based premium chocolate.

o Amul has plans to venture into a new territory – the fast-growing cookie category – by

setting up a plant to produce 20 tonnes of cookies a day.

o Frito-Lay India has plans to acquire a stake in Balaji Wafers Pvt Ltd. The deal could help

PepsiCo increase its share of the fast-growing snacks market in India, where it has been

losing out to local players.

o Balaji Wafers Pvt Ltd has a very strong presence in the Indian market, particularly in West

India. Domestic players like Balaji Wafers Pvt Ltd, Prakash Snacks Pvt Ltd, Parle Products

Ltd, Capital Foods Ltd used the strategy of developing products catering to regional tastes

and ramping up their distribution in small towns through direct sales forces and sub-

stockists.

Premiumisation in Impulse and Indulgence Products

o Increased disposable incomes among the middle class, thus consumers are on the lookout

for premium offerings. Indian consumers have shown a willingness to pay extra for

indulgence even when unit prices are soaring.

o Ice cream in India has seen the entry of several premium international brands, like Häagen-

Dazs, Swensen’s, Magnum and Mini Melts. Hindustan Unilever Ltd launched its global

brand Magnum in India in March 2013.

o Similarly, Vadilal Industries Ltd, which is known for its mass and standard priced brands,

has formulated a strategy to focus on higher end products. For instance, the company

launched its Artisan range, including ice cream log, ice cream pastry, Sneak-a-Bar, Kewara

Mataka Kulfi and the Falalaa brand.

Adults’ Demand for premium chocolate increased

o Premium chocolates, such as Chocoladefabriken Lindt & Sprüngli, expanded their presence

in premium stores such as Brown Tree in urban areas.

o Nestlé India Ltd introduced premium confectionery Alpino priced at Rs25 for a pack of two

bite-sized chocolates.

o Sales of premium chocolates were supported further as consumers continued to prefer

giving premium chocolates on occasions such as traditional Indian festivals, for example

Diwali and Raksha Bandhan.

o Cadbury brought in Toblerone to expand the gift giving chocolate segment, along with

launching variants of its Bournville brand. Mars International India also launched its

vegetarian Snickers chocolate in the country.

Premiumisation in Biscuits category

o Parle G is a well-known mass brand of biscuits, which has been expanded to a premium

quality variant under the brand name Parle G Gold.

o The company claims that this biscuit is bigger, with a richer formulation.

o Brands like Dark Fantasy Choco Fills and Hide & Seek are present. These premium brands

are showcased with attractive packaging to portray a high-end brand image.

Premiumisation in Biscuits category

o Cremica launched Opera cottage style chips in four variants – Cheese Jalapeño, Piri Piri,

Italian Herbs and Salt & Black Pepper – in Mumbai. These are premium chips priced at

Rs50 for 60g.

o Gujarat Co-operative Milk Marketing Federation, which owns the Amul brand, has identified

the rural market as a strategic thrust area and has made giant strides to improve its

distribution in rural India.

o Hindustan Unilever Ltd’s Project Shakti received a technology boost in 2012. The company

claims that about 40,000 Shakti Ammas (local entrepreneurs) were equipped with a basic

smartphone with software to enable them to take and bill orders, manage inventory and

receive updates on promotional schemes run by the company.

o Dabur India Ltd uses hand-held devices to generate data, which is then used to decipher

buying patterns and customise selling strategies. ITC Ltd has also invested in in-store

visibility in rural markets and has leveraged Choupal Haats (village meeting places) in rural

India for enhanced consumer engagement with the brands.

Digitization Of Means Of Communication

o Companies are expected to reach rural consumers through mobile phones and televisions,

which have penetrated well in the rural market. Companies are expected to develop value

proposition products as rural consumers become more demanding.

Penetration of Smaller SKUs

o The launch of products at prices like Rs5 and Rs10 is helping companies protect their

market share. For instance, Kellogg’s India has launched breakfast cereals priced at Rs10

which are mainly targeted at rural and semi-urban consumers.

o Packaging companies like Tetra Pak is betting big on the rural India for which it is preparing

to introduce smaller sized packs. For the rural areas, the company is focusing on different

pack sizes which vary from 100ml, 200ml, 250ml, 500ml and 1,000ml, and also 65ml.

Nestlé has launched smaller items of confectionery under its existing brands at Rs2 and

Rs5 each to push rural sales.

North East

o International manufacturers are expected to focus on introducing smaller pack sizes at

lower price points to maintain the affordability of products.

o The focus will mainly be on mass products, as premium products are not affordable for the

great majority of consumers in the region.

o ITC Ltd, in partnership with Keventer Agro Ltd, has plans to establish a manufacturing

facility for Sunfeast Yippie! Noodles in Kolkata. The company states that the Rs500 million

manufacturing unit will have capacity to manufacture 50 tonnes of instant noodles.

North

o Along with large cities, growth has started coming from smaller cities as well, mainly

because of the influence of media advertisements, the rising interest of consumers and

promotional activities by companies.

o Health and wellness will be seen across all product categories over the forecast period.

Probiotic and sugar-free concepts in ice cream, low absorption factor in oils, and high-fibre

and low-sugar biscuits and baked snacks have yet to establish a presence.

o However, natural products, such as olive oil and oats, are likely to gain sales. A challenge

for health and wellness products is consumer price sensitivity and low awareness of health

benefits amongst consumers.

o A comparative analysis of the top five industries on basis of Market Capitalization and Net

Profit Margin are as follows

o We see that it may not necessarily be the case that the largest segments are the most

profitable. While Auto Manufacturers account for the largest share of Market capitalization

with $ 296 billion, it continues to have among the lowest profitability at 1.8%

o For the packaged food industry, the players must deal with a number of internal and

external pressures and demands.

o The fundamental principles to be followed should be directed towards protecting/increasing

profits as well as reducing costs related to

o Supply-chain management – Net asset turns on raw materials and finished goods

inventories, efficient sourcing decisions and reducing scrap or return rates

o Manufacturing – Improving operational efficiency and employee productivity

o Information technology – Cost containment and outsourcing, standardization and

consolidation of server assets, increasing reusability, and an application infrastructure

that protects and maximizes key databases and information assets

o Mergers, acquisitions, breakups and spin-offs

o The Gross Domestic Product (GDP) at 2004-05 prices in India has gone up to Rs. 52,43,582 Crore in 2011-12 from Rs. 35,64,364 Crore in 2006-07, with Compound Annual Growth Rate (CAGR) of 8.0%.

o Contribution of FPI sector has increased to Rs. 78,094 Crore in 2011-12 from Rs. 52,161 Crore in 2006-07 with

CAGR of 8.4%.

o CAGR for total manufacturing and agriculture sector during the same period has been growing at 7.6% and 3.8% respectively.

o In 2012-13, growth of

manufacturing sector has

decelerated significantly.

However, as per the Index of

Industrial Production (IIP), FPI

has performed better than

manufacturing sector; while FPI

grew at 2.6 per cent, growth of

manufacturing sector was 1.2 per

cent as can be seen from the

graph

o Persons Employed under the registered food processing industries have been increasing steadily over the

years registering a CAGR of 3.6 % over a period of five years ending 2010-11.

As opposed to an overall increase in the employment in the registered food

processing industry, there has been a fall in employment in unregistered sector

of FPI.

As per NSSO 67th Round Data (July, 2010- June, 2011), in the unorganized

Food Processing Sector 47, 92,561 persons were employed during the year

2010-11

Investments in the registered food processing industry

have been steadily growing over the past few years.

There was an increase of 18.93% in 2007-08 over the

previous year.

A nation-wise study on quantitative assessment of harvest and post-harvest losses at

national level were of the order of Rs. 44,143 crore per annum at 2009 wholesale prices

for 46 agricultural produces in 106 randomly selected districts was carried out by CIPHET.

Biscuits:

Biscuits is set to register value growth of 19% in 2013 to reach sales of Rs180 billion

Cookies with value growth of 34% in 2013 is set to register the fastest growth within biscuits

Unit prices of biscuits are expected to rise by 10% in 2013 due to higher input costs of raw materials

Britannia Industries with an anticipated retail value share of 35% in 2013 continues to be the category leader

Constant retail value sales of biscuits are expected to rise by a CAGR of 10% over the forecast period

Baked goods:

Baked goods is set to register retail value growth of 10% in 2013 to reach Rs94 billion

Packaged/Industrial bread is set to record the fastest value growth of 15% in baked goods in 2013

Unit prices of baked goods are expected to increase by 7% in 2013 due to prevailing high inflation in the

country

Constant value sales are expected to record a CAGR of 2% over the forecast period

Frozen Foods:

Current value sales of frozen processed food are set to rise by 24% in 2013 to reach Rs5 billion

Prevailing double-digit inflation of food products make frozen food attractive and drive sales

Non-oven frozen potatoes registers the fastest value growth of 25% in 2013 to touch sales of Rs286 million

Unit prices of frozen processed foods are expected to rise by 2% in 2013

Mother Dairy Fruit & Vegetable continues to be a category leader with an expected value share of 22% in 2013

Frozen processed food is expected to grow by a CAGR of 11% in constant value sales over the forecast period

Dried Processed:

Dried processed food is set to register retail value growth of 23% in 2013 to reach Rs106 billion

A number of new product launches at different price points by the leading players in 2013 accelerate the shift

from unpackaged to packaged rice

Rice with anticipated retail value growth of 26% in 2013 takes sales to Rs54 billion and registers the fastest

growth during the year

Unit prices of dried processed foods are expected to rise by 4% in 2013

Nestlé continues to be the leading player in dried processed food with a retail value share of 26% in 2013

Constant value sales of dried processed food are expected to rise by a CAGR of 11% over the forecast period

Ready meals:

Ready meals is set to record current value growth of 21% in 2013 to reach sales of Rs1 billion

Prevailing high food inflation in the country, growth of modern retail outlets, an increasing number of working

women and the growing need for convenience continue to drive sales of ready meals

Frozen ready meals is set to register the fastest value growth of 25% in 2013 to touch sales of Rs392 million

Unit prices of ready meals are expected to rise by 3% in 2013

MTR Foods continues to lead the category in 2013 holding a 37% value share

Sales of ready meals are expected to increase by a CAGR of 10% in constant value terms over the forecast

period

Snacks Bars:

Snack bars is set to register retail value growth of 24% in 2013 to reach Rs1 billion

Sales of snack bars remain low due to limited awareness of the product among consumers

Energy and nutrition bars with retail value growth of 25% in 2013 will register the fastest growth within snack

bars

Unit prices of snack bars are expected to increase by 6% in 2013 due to prevailing high inflation in the country

Naturell with a retail value share of 62% in 2013 continues to be the category leader

Constant retail value sales of snack bars are expected to rise by a CAGR of 12% over the forecast period

Oils and Fats:

Oils and fats is set to register retail value growth of 21% in 2013 to reach Rs405 billion

The growing health and wellness trend drives Indian consumers to trade up to premium oils and fats

Olive oil with retail value growth of 37% in 2013 is set to register the fastest growth within oils and fats

Unit prices of oils and fats are expected to increase by 12% in 2013 due to prevailing high inflation in the

country

Ruchi Soya Industries Ltd with retail value share of 17% continues to be the category leader within oils and fats

in 2013

Constant retail value sales of oils and fats are expected to rise by a CAGR of 9% over the forecast period

Ice cream:

Ice cream sales are set to register retail value growth of 20% in 2013 to reach Rs36 billion

Leading players in standard ice cream continue rolling out new flavours in impulse ice cream to respond to

consumer demand

Take-home dairy ice cream is set to record the fastest value growth of 22% in 2013

Unit prices of ice cream are expected to increase by 9% in 2013 due to rising prices of milk and sugar

Gujarat Co-operative Milk Marketing Federation , set to achieve a retail value share of 31%, continues to be the

category leader in ice cream in 2013

Constant retail value sales of ice cream are set to register a CAGR of 8% over the forecast period

Spreads:

Spreads is set to register value growth of 20% in 2013 to reach Rs8 billion

Price rises push up value sales of spreads during 2013

Nut and seed based spreads is set to record retail value growth of 56% in 2013 registering the fastest growth

within spreads

Unit prices of spreads are expected to increase by 11% in 2013 due to prevailing high inflation in the country

Dabur with an anticipated retail value share of 37% in 2013 continues to be the category leader

Constant retail value sales of spreads are expected to grow by a CAGR of 9% over the forecast period

Breakfast Cereals:

o Breakfast cereals is set to register value growth of 27% in 2013 to reach Rs9 billion

o Hectic lifestyles along with the growing health and wellness trend propel demand for

breakfast cereals

o Hot cereals, set to achieve retail value growth of 40% in 2013, will register the fastest

growth in breakfast cereals

o Unit prices of breakfast cereals are expected to increase by 3% in 2013 due to inflationary

pressures

o Kellogg with an anticipated value share of 39% continues to be the category leader in 2013

o Constant retail value sales of breakfast cereals are expected to grow by a CAGR of 22%

over the forecast period

Canned or preserved food

o Current value sales are set to increase by 18% in 2013 to reach Rs5 billion

o Rising prices of vegetables and fruit make canned/preserved food products attractive by

reducing the price differential between canned and fresh food

o Canned/preserved fruit is expected to record the fastest current value growth of 19% in

2013 to reach Rs4 billion

o Unit prices of canned/preserved food are set to rise by 5% in 2013

o Oudh Sugar Mills continues to lead in canned/preserved food with a value share of 9% in

2013

o Canned/preserved food is expected to grow by a CAGR of 6% in constant value terms over

the forecast period