The Indian packaged food market is expected to be worth $270 billion by 2027, driven by often contradictory trends in different parts of the country.
Sitladevi lives in the crafts village of Nirona, on the way to the Rann of Kutch in Gujarat. She makes a living serving home-cooked local cuisine to tourists. Her bajre na rotla loaded with ghee, gond ka halwa and baingan ka bharta are a hit. As you get into a conversation about where she gets her bajra atta or ghee, she surprises by saying she mostly uses packaged atta from the neighbourhood kirana store. "The packaged atta is clean and convenient. I only go to a chakki to get wheat for halwa as I am used to a particular consistency," she says. Her kitchen also has a bagful of Rs 5 Britannia cakes for her child's birthday. Earlier, she used to make halwa but says, "Aaj kal bacchon ko yeh hi pasand hai," she says.
Is small-town India, where 60 per cent of India lives, embracing packaged food due to reduced prices post GST, a single tax system that has enabled manufacturers to distribute in far-flung areas?
One sees similar trends in the quaint town of Ramanagara, off the Bengaluru-Mysore highway, where the local provision store has a string of Rs 10 Milky Mist ghee sachets. Owner R. Shyam says these sell well as they save people the hassle of making ghee at home. "People are becoming quality conscious. They want their food to be clean and fresh and pesticide-free," says Arvind Mediratta, MD, Metro Cash & Carry. Metro, apart from selling products of food companies, has been actively pushing its own brand, Fine Life, to retailers. Mediratta says having own branded play is important for maintaining standards.
A Credit Suisse Report says the branded packaged foods market will grow from $75 billion to $270 billion over the next decade (from about Rs 7,413 crore to Rs 18.86 lakh crore @ Rs 69.84 to a dollar), a compounded annual growth rate (CAGR) of 17 per cent over 10 years. "We expect the overall packaged foods market to grow at 13 per cent but branded should grow faster. The growth is likely to be even faster at 18 per cent for non-commoditised branded packaged foods categories," it says. Categories such as baby food, chocolates, biscuits, baked products, and juices and ready-to-drink beverages are pegged to see the most growth.
Under GST, FMCG companies, including food majors such as Britannia and Nestle, have done well. Nestle India saw volume growth of close to 11.2 per cent in nine months of 2018, its net profit jumped 39 per cent, and it launched close to 40 new products. Britannia Industries has seen its stock price surge 66 per cent since GST launch. Mondelez India (makers of Cadbury chocolates) posted 47 per cent growth in net profit in 2017/18.
The 2017/18 fiscal saw the announcement of 23 new processed food -related investments in India of Rs 5,231 crore (as per CMIE); 16 projects worth Rs 3,274 crore have been completed. The food sector has also seen considerable investment by start-ups backed by private equity. While 2015 saw 16 rounds of food start-up funding worth $32.30 million (about Rs 225.6 crore), in 2017, this was $48.90 million (about Rs 341.5 crore). The 2018/19 fiscal has seen 13 rounds of funding at $70.10 million (Rs 489.6 crore), according to Tracxn. The star investment was the Rs 31,700-crore merger of the consumer division of GSK with Unilever.
A lot of this growth has been clearly due to GST, which brought down prices of food products by 5-12 per cent. Improved supply chain and availability of electricity, which aided cold chains, have also played a big role.
The story in urban India is different. The desire is to cook and eat fresh. "If you listen to the chatter in office or at a cafe, people are looking for healthier food options and want to eat fresh," says Avani Davda, MD, Godrej Nature's Basket. Urban India is seeing a gradual shift towards fresh, shorter-shelf life packaged food. The days when one used to drive all the way to Pune for fresh Shrewsbury biscuits at Kayani Bakery are coming back. "We are a country that eats fresh, which is why processed foods brands have not taken off the way they could have. Food habits change every 100 kilometres. So, understanding food and its diversity is a mammoth task," says Ashni Biyani, MD, Future Consumer Products.
No wonder companies such as iD Foods (makers of dosa-idli batter) and Epigamia (Greek yogurt) have scaled up. However, Varun Berry, MD, Britannia Industries, says the Indian packaged foods story is that of "India and Bharat". "At the one end, you have consumers who have disposable incomes looking for healthier options. And on the other end, you have people for whom bhukh-pyaas is important, and for whom taste is important too. So, the trend to eat fresh and healthy will be for a certain segment, but the large population will look at products that fill their stomachs and are tasty."
Berry is talking about democratisation of packaged foods. He agrees with Mediratta's (Metro MD) view of the Indian consumer's rising demand for quality. "They want good products at the right price, therefore, we are trying to democratise the best products. I want to give the best product but I want to cut frills like packaging," says Berry. He gives the example of premium cookies Chunkies, which earlier came in a box of five cookies, each packed separately. "We have launched a Rs 20 pack. We have put five large cookies in a tray pack," he explains.
All About Scale
The most interesting food innovations in the past few years have come from start-ups and not the larger companies. "The smaller companies' speed to market is fast," says Davda, who prefers to partner with start-ups. "I partner with them, understand the trend and give them the shelf space. For instance, while there is block cheese, people are asking for fresh cheese. People want imported French cheese with a 15-day shelf life. They are not happy with a three-month shelf life. So, if somebody brings fresh cheese, we put our brand name and sell."
However, categories such as batters, Greek yogurt or artisanal breads have the challenge of scale and, hence, don't appeal to the biggies. Building a food business of scale will require change of habit and mindset, explains Balram Yadav, MD, Godrej Agrovet. He says while there are many takers for fresh dosa-idli batter, there are many who prefer their own batter. "For a large company to take interest in a category like batter, it has to be adopted by a large mass of people. In addition, managing logistics of a fresh product involves huge costs; it also has to be produced closer to the market. A large company will not invest unless it sees scale," says Yadav.
The revenue from a particular product launch also has to be large enough, explains Berry of Britannia. He says the supply chain infrastructure of a large food conglomerate is also not akin to fresh products'. Products like idli batter and cold pressed juices with just three-four day shelf life will continue to remain with smaller entrepreneurs as these do not generate large revenue, he adds. "However, going forward, even large companies will have to think about how to handle smaller SKUs and give them the attention required if they have to compete with start-ups," admits Berry.
The writing on the wall is clear. The packaged food sector is set to explode. But a $1 billion-food business (Rs 6,984 crore) is unlikely, says Yadav of Godrej Agrovet. "Scale will be the biggest challenge," he says. The other big challenge would be inflation. "As we get into the next calendar year, every company may look at price increase as inflation may be back," says Berry. Catering to a price consumer as well navigating market realities will surely be a challenge for the food companies in India.