DISSERTATION ON
CHALLENGES FACED BY FMCG COMPANIES IN
READY TO EAT MARKET
Submitted to: -
Submitted by:-
Prof. Arun Bhattacharya
Saurabh Sinha (PGSF0847) PGDM (SERVICES) BATCH:-2008-10
JAIPURIA INSTITUTE OF MANAGEMENT, NOIDA
1
ACKNOLEDGEMENT I would like to thank Prof. Arun Bhattacharya for giving me the opportunity to work on this emerging market of ready to eat in India. By doing so I have learnt about the major issues related to this market in context with the FMCG industry. I also learnt and gather information about the trend and the behavior of the Indian population for this market. Another aspect on which my research has shown is the issues and problems faced by the FMCG companies. This has brought to me at the conclusion that this market will emerged as one of the most profitable and growing industries in India. I would also like to thank the companies and people for lending me full support for completion of my successful project.
Saurabh Sinha pgsf0847 PGDM (Services) Batch: - 2008-10 Jaipuria Institute of Management Noida
2
CONTENTS 1. Intr Introd oduc ucti tion on 2. Agricu Agricultu lture re Indust Industry ry 3. FMCG FMCG in Indi India a 4. Play Player erss in in FMCG FMCG 5. Indian Indian Food Food Proces Processin sing g Industr Industry y 6. Read Ready y to to Eat Eat Mark Market et 7. Ob Obje ject ctiv ives es of of Stud Study y 8. Data Data Anal Analys ysis is 9. Conclu Conclusio sion n and Sugg Suggest estion ionss 10.Findings 11.Questionnaire 12.Bibliography
3
4
As more and more people in developing countries live in cities, urban food and nutrition issues are becoming increasingly relevant and pressing. New approaches focusing on urban consumers need to be developed. The urban/rural dichotomy has to give way to strategies integrating both sectors. As there are wide disparities between cities of the developing world, reference to an "average" urban consumer is misleading and the identification of consumer groups having different 5
cultural backgrounds, socio-economic status, lifestyles and consequently, different consumer behaviors and needs, is preferred.
Although general trends in food consumption
patterns have been documented, such analysis underscores serious gaps in our knowledge and understanding of which foods are consumed by which consumer groups, in which form, where and why. Consequently, the foods and diets of the various strata of urban populations deserve more attention than they have been given so far, not only for their implications on food and agriculture planning, but also for determining remedial actions and preventive measures. For middle class consumers, price is only one of the factors that motivate food choice. Others include taste, quality, prestige, cultural value, appeal, convenience, and so forth.
Understanding consumer motivations and knowing the relative importance of various criteria for different consumer groups are essential to the development and promotion of local products. Thus, in addition to aspects of production, efforts in processing, marketing and distribution need to be given adequate emphasis.
Eating meals prepared outside the home is a typical feature of urban lifestyles, often conditioned by long travel times to work, limited cooking facilities and other resources for food preparation in the home, as well as greater convenience and often competitive prices. "Street foods" are a dynamic sector of the informal economy; they are an important social phenomenon. They are proliferating at a tremendous rate in a number of cities, as they satisfy needs that are not met by the formal sector. Consumers have specific needs and rights with regard to their food. They have to be protected, oriented and represented. With intensive urbanization, the food systems are becoming increasingly complex and very large volumes of food move through the systems. This magnifies the health and economic risks to which urban consumers are exposed. Another nutritional aspect of urban foods is the growing supply of highly processed foods and drinks (locally processed or imported), as these may be of lower nutritional quality than the unrefined or traditionally processed foods that they displace.
6
Consumer needs and wants are determined by a number of internal and external factors. The urban environment entails important changes in lifestyles, economic activities, exposure to marketing and reference group influences. Now the time is to provide better food processing & its marketing infrastructure for Indian industries to serve good quality & safest processed food like ready to eat food. It is opening a new window in world scenario as far as taste & acceptance is concerned. The retort processed foods do not require rehydration or cooking and can be consumed straight from the pouch with or without pre-warming, depending upon the requirement of the users and the weather conditions.
These foods meet the specific needs of convenience, nutritional adequacy,
shelf stability, storage, distribution to the centers and have become very popular after the Year 2002. Some of the mouth-watering dishes in retort pouches include sooji halwa, upma, chicken curry, mutton curry, fish curry, chicken madras, chicken kurma, rajma masala, palak paneer, dal makhni, mutter paneer, potato-peas, mutter mushroom, mutton pulav, etc.
7
Agriculture is the backbone of Indian Economy. About 65% of Indian population depends directly on agriculture and it accounts for around 22% of GDP. Agriculture derives its importance from the fact that it has vital supply and demand links with the manufacturing sector. During the recent years agriculture sector has witnessed spectacular advances in the production and productivity of food grains, oilseeds, commercial crops, fruits, vegetables, food grains, 8
poultry and dairy. India has emerged as the second largest producer of fruits and vegetables in the world in addition to being the largest overseas exporter of cashews and spices. Further, India is the highest producer of milk in the world. Agriculture in India is in the hands of millions of peasant households, a bulk of which comprise tiny land holdings with preponderance of owner cultivation. There is hardly any direct government intervention in the production and investment decisions of the farmers but the government does influence the legal, material and economic environment in which farmers operate. Though tremendous progress has been made to exploit irrigation potential in the country still two third of area under cultivation is unirrigated and there is thus heavy dependence of production on vagaries of nature i.e. rainfall. Irrigated areas have experienced sharp increase in productivity level and large part of output at such farms is for market. On the other hand, productivity in unirrigated areas has remained either stagnant or experienced very small growth and most of the farmers in such areas produce for subsistence purpose. At overall level, agricultural growth remained slow (below 3 percent) in the country. Apart from that, agricultural growth remained confined to a few well endowed pockets which have created regional disparities. India’s agricultural area is vast with total arable and permanent cropland of 170 million hectares. It has the second largest arable area in the world after the United States. OECD in it’s 2007 agricultural policy monitoring report notes that Indian agriculture is dominated by a large number of small scale holdings that are predominantly owner occupied.
The average size of holding in the late nineties was about 1.4 hectares and continues to decline, as farms are usually divided on inheritance. Out of India’s 116 million farmers, around 60% have less than 1 hectare and together they farm 17% of the land. The share of medium to large farms (above 4 hectares) is very small at just over 7% of all holdings, but these farms account for around 40% of the land. The implication is that many of the very small farms are subsistence holdings, with low investment and little productivity growth.
9
RECENT TRENDS IN INDIAN AGRICULTURE:
Though green revolution has been widely diffused in irrigated areas. Throughout the country, the dry land areas have not seen benefit of technological breakthrough as witnessed through green revolution technology. Of late, improved varieties of oilseeds and course cereals have provided some opportunities for productivity growth in dry land areas. A new phase was started in India’s economic policy in 1991 that marked significant departure from the past. Government initiated process of economic reforms in 1991, which involved deregulation, reduced government participation in economic activities, and liberalization. Though much of the reforms were not initiated to directly affect agriculture sector, the sector was affected indirectly by devaluation of exchange rate, liberalization of external trade and disprotection to industry. Then, came new international trade accord and WTO, requiring opening up of domestic market. Initially there were strong apprehensions about the impact of trade liberalization on Indian agriculture which later on turned out to be real threat for several commodities produced in the country. All these 10
changes raised new challenges and provided new opportunities that required appropriate policy response. Besides, last two decades had witnessed mainly price intervention that had a very limited coverage, and there was a sort of policy vacuum.
11
Marketing of Agricultural Products: Form of Markets exists in India:
Agricultural markets in India are dominated by the existence of unorganized and unregulated agricultural mandies with the presence of a large number of middlemen and widespread prevalence of malpractices. Absence of proper warehousing facilities in the villages, lack of proper transportation facilities and infrastructure such as rails and good quality all weather roads and ignorance about the market prices of their products are some of the important factors for exploitation of farmers from middle men. They are forced to sell their products to these middlemen at the farm gate at throwaway prices. Agricultural Market Reforms in India:
Ministry of Agriculture had formulated a model law on agricultural marketing in consultation with State/Union territory Governments to bring about marketing reforms in line with emerging trends. This model act enables establishment of private markets/yards, direct purchase centers, consumers/farmers markets for direct sale, and promotion of public-private partnership (PPP) in the management and development of agricultural markets in the country. It also provides for exclusive markets for onion, fruits, vegetables, and flowers. Regulation and promotion of contract farming arrangement has also been made a part of this legislation. A provision has also been made for constitution of State Agricultural Produce Standard Bureau for promotion of grading, standardization, and quality certification of agricultural produce. So far, 15 States and 5 Union Territories have amended their Agricultural Produce Marketing Committee (APMC) Act to derive the benefits of market reforms. E-Chaupal:
E-Chaupal is a business platform consisting of a set of organizational Subsystems and interfaces connecting farmers to global markets. It has been initiated by Imperial Tobacco Company (ITC) who is quite active in agricultural sector in India. This e-chaupal business platform consists of three layers each of different level of geographic aggregation.
12
Each of the three layers is characterized by three key elements: 1. The infrastructure (physical or organizational) through which transaction takes place. 2. The entity (person or organization) orchestrating the transactions, and 3. The geographical coverage of the layer.
The first layer consists of the village level kiosks with internet access (e-chaupals), managed by an ITC trained local farmer and within walking distance (1-5 kilometers) of each target farmer. Each cluster of five villages gets an e-chaupal, which is justified by sparse population in rural India. The second layer consists of a brick and mortar infrastructure called hubs managed by the traditional intermediary who has local knowledge/skills called a Samayojak and within tractorable distance (25-30 kilometer) of then target farmer. Agricultural Commodities Exchanges:
To introduce future trading in agricultural commodities in India, two commodity exchanges have been introduced in 2003 for future trading. They are, National Commodity & Derivatives Exchange Limited (NCDEX) and Multi Commodity Exchange of India Limited (MCX). These exchanges are majorly dealing in agricultural commodities. They are involved in forward trading to mitigate price risks of the farmers. In the recent decades, there is an increasing demand of organic foods in the developed world. Organic farming is an important pillar of sustainable agriculture, which is beneficial for producers and consumers both. India has a great potential for organic farming using traditional wisdoms prevailing in the villages of India. In fact, a large section of Indian agriculture uses more or less organic method of farming using minimum level of chemical inputs. Promotion of organic farming in India could prove beneficial to increase share of Indian agricultural export in the world export.
13
14
FMCG industry, alternatively called as CPG (Consumer packaged goods) industry primarily deals with the production, distribution and marketing of consumer packaged goods. The Fast Moving Consumer Goods (FMCG) are those consumables which are normally consumed by the consumers at a regular interval. Some of the prime activities of FMCG industry are selling, marketing, financing, purchasing, etc. The industry also engaged in operations, supply chain, production and general management. FMCG industry economy
FMCG industry provides a wide range of consumables and accordingly the amount of money circulated against FMCG products is also very high. The competition among FMCG manufacturers is also growing and as a result of this, investment in FMCG industry is also increasing, specifically in India, where FMCG industry is regarded as the fourth largest sector with total market size of US$13.1 billion. FMCG Sector in India is estimated to grow 60% by 2010. Common FMCG products
Some common FMCG product categories include food and dairy products, glassware, paper products, pharmaceuticals, consumer electronics, packaged food products, plastic goods, printing and stationery, household products, photography, drinks etc. and some of the examples of FMCG products are coffee, tea, dry cells, greeting cards, gifts, detergents, tobacco and cigarettes, watches, soaps etc. Market potentiality of FMCG industry
Some of the merits of FMCG industry, which made this industry as a potential one are low operational cost, strong distribution networks, presence of renowned FMCG companies. Population growth is another factor which is responsible behind the success of this industry. The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion.It has a strong MNC presence and is characterised by a wellestablished distribution network, intense competition between the organised and unorganised segments and low operational cost. Availability of key raw materials, cheaper labour costs and presence across the entire value chain gives India a competitive advantage. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, 15
particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products. Growth is also likely to come from consumer 'upgrading' in the matured product categories. With 200 million people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment in the food-processing industry.
16
17
Hindustan Unilever Limited also called Hindustan Lever Limited (HLL) was established in 1933 as Lever Brothers India Limited. Hindustan Lever Limited (HLL) is India's largest Fast Moving Consumer Goods Company, with a customer base of 2 out of every 3 Indian in the category of Home & Personal Care Products and Foods & Beverages. The company has combined volumes of about 4 million tonnes and sales of Rs.10, 000 crores. HLL is also one of the country's largest exporters; the Government of India has recognized HLL as a Golden Super Star Trading House. Type
Public
Headquarters
Mumbai , India
Key people
Mr.Harish Manwani , Chairman Douglas Baillie, CEO
Industry
FMCG
Products
Tea, soap, detergents
Employees
41,000
Parent
Unilever
Website
www.hll.com
Some of HLL brands are:
18
• • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Kwality Walls Ice Cream Hamam Lifebuoy Rexona Lux Liril Moti Soaps Breeze Lipton Tea Brooke Bond Tea Bru Coffee Pepsodent Close Up Surf Rin Wheel Laundry Detergent Kissan Annapurna Pond's Vaseline Fair & Lovely Lakmé Clinic Plus Clinic All Clear Sunsilk and Lux Shampoos Vim Ala Bleach Domex Pureit Water Purifier
The Hindustan Lever Research Center (HLRC) was established in 1958, and now has facilities in Mumbai & Bangalore. HLRC has 200 highly qualified scientists and technologists, many of them with postpost-doctor doctoral al experi experience. ence. HLL also runs vario various us ambit ambitious ious programmes like Shakt Shakti.i. Shakti's aim is to create opportunities for rural women thereby improving their livelihood and standard of living in rural sector. Shakti also includes health and hygiene education through the Shakti Vani Programme. The programme covers about 50,000 villages in 12 states. HLL's motive is to take this programme to 100,000 villages influencing the lives of over a 100 million rural Indians. HLL is also involved in running a rural health programme - Lifebuoy Swasthya Chetana. The programme aims to inculcate the hygienic practices among rural Indians to bring down the figure of diarrhea patients. It has already covered 70 million people in approximately 15000 villages of 8 states.
19
Imperial Tobacco Company(ITC) is one of India's foremost private sector companies with a market capitalization of nearly US $ 19 billion and a turnover of over US $ 5 billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today. ITC ranks among India's `10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part.” ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hotels. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach.
20
Nestlé India is a subsidiary of Nestlé S.A. of Switzerland. With seven factories and a large number of co-packers, Nestlé India is a vibrant Company that provides consumers in India with products of global standards and is committed to long-term sustainable growth and shareholder satisfaction. The Company insists on honesty, integrity and fairness in all aspects of its business and expects the same in its relationships. This has earned it the trust and respect of every strata of society that it comes in contact with and is acknowledged amongst India's 'Most Respected Companies' and amongst the 'Top Wealth Creators of India'. Nestlé’s relationship with India dates back to 1912, when it began trading as The Nestlé Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian market. After India’s independence in 1947, the economic policies of the Indian Government emphazised the need for local production. Nestlé responded to India’s aspirations by forming a company in India and set up its first factory in 1961 at Moga, Punjab, where the Government wanted Nestlé to develop the milk economy. Progress in Moga required the introduction of Nestlé’s Agricultural Services to educate, advise and help the farmer in a variety of aspects. From increasing the milk yield of their cows through improved dairy farming methods, to irrigation, scientific crop management practices and helping with the procurement of bank loans. Nestlé set up milk collection centres that would not only ensure prompt collection and pay fair prices, but also instil amongst the community, a confidence in the dairy business. Progress involved the creation of prosperity on an on-going and sustainable basis that has resulted in not just the transformation of Moga into a prosperous and vibrant milk district today, but a thriving hub of industrial activity, as well. For more on Nestlé Agricultural Services. Nestlé has been a partner in India's growth for over nine decades now and has built a very special relationship of trust and commitment with the people of India. The Company's activities in India have facilitated direct and indirect employment and provides livelihood to about one million people including farmers, suppliers of packaging materials, services and other goods. The Company continuously focuses its efforts to better understand the changing lifestyles of India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness through its product offerings. The culture of innovation and renovation within the Company and access to the Nestlé Group's proprietary technology/Brands expertise and the extensive centralized Research and Development facilities gives it a distinct advantage in these efforts. It helps the Company to create value that can be sustained over the long term by offering consumers a wide variety of high quality, safe food products at affordable prices. 21
Nestlé India manufactures products of truly international quality under internationally famous brand names such as NESCAFÉ, MAGGI, MILKYBAR, MILO, KIT KAT, BAR-ONE, MILKMAID and NESTEA and in recent years the Company has also introduced products of daily consumption and use such as NESTLÉ Milk, NESTLÉ SLIM Milk, NESTLÉ Fresh 'n' Natural Dahi and NESTLÉ Jeera Raita. Nestlé India is a responsible organization and facilitates initiatives that help to improve the quality of life in the communities where it operates
22
.Amul (AMUL means "priceless" in Sanskrit. The brand name "Amul," from the Sanskrit "Amoolya," was suggested by a quality control expert in Anand.) , formed in 1946, is a dairy cooperative in India. It is a brand name managed by an apex cooperative organisation, Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF), which today is jointly owned by some 2.8 million milk producers in Gujarat, India. AMUL is based in Anand, Gujarat and has been an example of a co-operative organization's success in the long term. It is one of the best examples of co-operative achievement in the developing economy. "Anyone who has seen ... the dairy cooperatives in the state of Gujarat, especially the highly successful one known as AMUL, will naturally wonder what combination of influences and incentives is needed to multiply such a model a thousand times over in developing regions everywhere." The Amul Pattern has established itself as a uniquely appropriate model for rural development. Amul has spurred the White Revolution of India, which has made India the largest producer of milk and milk products in the world. It is also the world's biggest vegetarian cheese brand . Amul is the largest food brand in India and world's Largest Pouched Milk Brand with an annual turnover of US $1050 million (2006-07). Currently Unions making up GCMMF have 2.8 million producer members with milk collection average of 10.16 million litres per day. Besides India, Amul has entered overseas marketssuch as Mauritius, UAE, USA, Bangladesh, Australia, China, Singapore, Hong Kong and a few South African countries. Its bid to enter Japanese market in 1994 did not succeeded, but now it has fresh plans entering the Japanese markets. Other potential markets being considered include Sri Lanka. Dr Verghese Kurien, former chairman of the GCMMF, is recognised as a key person behind the success of Amul. On 10 Aug 2006 Parthi Bhatol, chairman of the Banaskantha Union, was elected chairman of GCMMF.
23
Dabur India Ltd is one of India’s leading FMCG Companies with Revenues of about US$600 Million (over Rs 2834 Crore) & Market Capitalisation of over US$2.2 Billion (close to Rs 10,000 Crore). Building on a legacy of quality and experience for over 125 years, Dabur is today India’s most trusted name and the world’s largest Ayurvedic and Natural Health Care Company.
Dabur India is also a world leader in Ayurveda with a portfolio of over 250 Herbal/Ayurvedic products. Dabur's FMCG portfolio today includesfive flagship brands with distinct brand identities -- Dabur as the master brand for natural healthcare products, Vatika for premium personal care,Hajmola for digestives, Réal for fruit juices and beverages and Fem for fairness bleaches and skin care products. Dabur today operates in key consumer products categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods. The company has a wide distribution network, covering over 2.8 million retail outlets with a high penetration in both urban and rural markets. Dabur's products also have a huge presence in the overseas markets and are today available in over 60 countries across the globe . Its brands are highly popular in the Middle East, SAARC countries, Africa, US, Europe and Russia. Dabur's overseas revenues stands at over Rs 500 Crore in the 2008-09 fiscal, accounting for about 20% of the total turnover . The 125-year-old company, promoted by the Burman family, had started operations in 1884 as an Ayurvedic medicines company. From its humble beginnings in the bylanes of Calcutta, Dabur India Ltd has come a long way today to become one of the biggest Indian-owned consumer goods companies with the largest herbal and natural product portfolio in the world. Overall, Dabur has successfully transformed itself from being a family-run business to become a professionally managed enterprise . What sets Dabur apart from the crowd is its ability to change ahead of others and to always set new standards in corporate governance & innovation.
24
Cadbury is a leading global confectionery company with an outstanding portfolio of chocolate, gum and candy brands. It employs around 50,000 people and have direct operations in over 60 countries, selling our products in almost every country around the world. In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune) and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi, Mumbai, Kolkota and Chennai). The corporate office is in Mumbai. Its core purpose "creating brands people love" captures the spirit of what it is trying to achieve as a business. It collaborates and works as teams to convert products into brands. Simply put, it spreads happiness! Currently Cadbury India operates in four categories viz. Chocolate Confectionery, Milk Food Drinks, Candy and Gum category. In the Chocolate Confectionery business, Cadbury has maintained its undisputed leadership over the years. Some of the key brands are Cadbury Dairy Milk , 5 Star, Perk, Éclairs and Celebrations. Cadbury enjoys a value market share of over 70% the highest Cadbury brand share in the world! Its flagship brand Cadbury Dairy Milk is considered the "gold standard" for chocolates in India. The pure taste of CDM defines the chocolate taste for the Indian consumer. In the Milk Food drinks segment our main product is Bournvita - the leading Malted Food Drink (MFD) in the country. Similarly in the medicated candy category Halls is the undisputed leader. The Company recently entered the gums category with the launch of our worldwide dominant bubble gum brand Bubbaloo. Bubbaloo is sold in 25 countries worldwide. Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. For over two decades, it has worked with the Kerala Agriculture University to undertake cocoa research and released clones, hybrids that improve the cocoa yield. Its Cocoa team visits farmers and advises them on the cultivation aspects from planting to harvesting. They also conduct farmers meetings & seminars to educate them on Cocoa cultivation aspects. Their efforts have increased cocoa productivity and touched the lives of thousands of farmers. Hardly surprising then that the Cocoa tree is called the Cadbury tree! Today, it is poised in their leap towards quantum growth. It is a part of the Cadbury PLC, world's leading Confectionery Company. 25
The story of one of India's favourite brands reads almost like a fairy tale. Once upon a time, in 1892 to be precise, a biscuit company was started in a nondescript house in Calcutta (now kolkata) with an initial investment of Rs. 295. The company we all know as Britannia today. The beginnings might have been humble-the dreams were anything but. By 1910, with the advent of electricity, Britannia mechanised its operations, and in 1921, it became the first company east of the Suez Canal to use imported gas ovens. Britannia's business was flourishing. But, more importantly, Britannia was acquiring a reputation for quality and value. As a result, during the tragic World War II, the Government reposed its trust in Britannia by contracting it to supply large quantities of "service biscuits" to the armed forces. As time moved on, the biscuit market continued to grow… and Britannia grew along with it. In 1975, the Britannia Biscuit Company took over the distribution of biscuits from Parry's who till now distributed Britannia biscuits in India. In the subsequent public issue of 1978, Indian shareholding crossed 60%, firmly establishing the Indianness of the firm. The following year, Britannia Biscuit Company was re-christened Britannia Industries Limited (BIL). Four years later in 1983, it crossed the Rs. 100 crores revenue mark. On the operations front, the company was making equally dynamic strides. In 1992, it celebrated its Platinum Jubilee. In 1997, the company unveiled its new corporate identity - "Eat Healthy, Think Better" - and made its first foray into the dairy products market. In 1999, the "Britannia Khao, World Cup Jao" promotion further fortified the affinity consumers had with 'Brand Britannia'. Britannia strode into the 21st Century as one of India's biggest brands and the pre-eminent food brand of the country. It was equally recognised for its innovative approach to products and marketing: the Lagaan Match was voted India's most successful promotional activity of the year 2001 while the delicious Britannia 50-50 Maska-Chaska became India's most successful product launch. In 2002, Britannia's New Business Division formed a joint venture with Fonterra, the world's second largest Dairy Company, and Britannia New Zealand Foods Pvt. Ltd. was born. In recognition of its vision and accelerating graph, Forbes Global rated Britannia 'One amongst the 26
Top 200 Small Companies of the World', and The Economic Times pegged Britannia India's 2nd Most Trusted Brand. Today, more than a century after those tentative first steps, Britannia's fairy tale is not only going strong but blazing new standards, and that miniscule initial investment has grown by leaps and bounds to crores of rupees in wealth for Britannia's shareholders. The company's offerings are spread across the spectrum with products ranging from the healthy and economical Tiger biscuits to the more lifestyle-oriented Milkman Cheese. Having succeeded in garnering the trust of almost one-third of India's one billion population and a strong management at the helm means Britannia will continue to dream big on its path of innovation and quality. And millions of consumers will savour the results, happily ever after.
27
MTR Foods Private Limited is amongst the top five processed food manufacturers in India. They manufacture, market and export a wide range of packaged foods to global markets that include USA, UK, Australia, New Zealand, Malaysia, Singapore, UAE, Japan and Oman. Starting with the legendary MTR restaurant in Bangalore, India’s silicon valley, they now offer ''complete meal solutions'. Their wide range of products include ready-to-eat curries and rice, ready-to-cook gravies, frozen foods, ice cream, instant snack and dessert mixes, spices and a variety of accompaniments like pickles and papads. Their deep understanding of culinary expectations and needs has resulted in many new and innovative products. Their investments in infrastructure and technology ensure that they can scale rapidly and bring these to market. Today, consumers across the globe count on them to bring them all-natural, wholesome and delicious food that is also convenient and no-fuss.
28
29
India’s Food Processing industry is one of the largest industries in the country - it is ranked fifth in terms of production, consumption, export and expected growth. The Indian food industry is estimated to be worth over US$ 200 billion and is expected to grow to US$ 310 billion by 2015. India is one of the world’s major food producers but accounts for only 1.7 per cent (valued at US$ 7.5 billion) of world trade in this sector – this share is slated to increase to 3 per cent (US$ 20 billion) by 2015. The Indian food processing industry is estimated at US$ 70 billion. It contributed 6.3 per cent to India’s GDP in 2003 and had a share of 6 per cent in the total industrial production. The industry employs 1.6 million workers directly. Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products. The Ministry of Food Processing, Government of India has defined the following segments within the Food Processing industry: • Dairy, fruits & vegetable processing • Grain processing • Meat & poultry processing • Fisheries • Consumer foods including packaged foods, beverages and packaged drinking water. While the industry is large in terms of size, it is still at a nascent stage in terms of development. Out of the country’s total agriculture and food produce, only 2 per cent is processed. The highest share of processed food is in the Dairy sector, where 37 per cent of the total produce is processed, of which 15 per cent is processed by the organised sector. Primary food processing (packaged fruit and vegetables, milk, milled flour and rice, tea, spices, etc.) constitutes around 60 per cent of processed foods. It has a highly fragmented structure that includes thousands of ricemills and hullers, flour mills, pulse mills and oil-seed mills, several thousands of bakeries, traditional food units and fruits, vegetable and spice processing units in unorganised sector. In comparison, the organised sector is relatively small, with around 516 flour mills, 568 fish processing units, 5,293 fruit and vegetable processing units, 171 meat processing units and numerous dairy processing units at state and district levels.
30
Segment -wise Analysis Dairy Sector
India stands first in the world in terms of milk production .The output is expected to be about 108 million tonnes (estimate for 2007), growing at a compounded annual growth rate of 4 per cent. Consumption of milk has registered a growth of nearly 8.4 per cent (in urban areas) and is currently valued at US$ 16 billion. The dairy sector ranks first in terms of processed foods with 37 per cent of the produce being processed. The organised sector processes an estimated 15 per cent of the total milk output in India. There are 676 dairy plants registered with Government of India, which come under the organised sector. Milk and milk products contribute to a significant 17 per cent of the country’s total expenditure on food. Traditional dairy products account for about 50 per cent of the total milk produced. The market for dairy products is expected to grow at 15-20 per cent over the next three years. • Ghee is the most widely marketed and branded product with a nation-wide penetration of 24.1 per cent. It is estimated to be growing at a rate of 8 per cent per annum • The dairy whitener market comprises of sweetened milk powders, condensed milk and creamers. Its market size is estimated at US$ 450 million. • The cheese market is estimated at US$ 2.49 million for (54000 tonnes in volume terms), growing at a rate of nearly 10 per cent per annum. The organized cheese market is dominated by processed cheese which accounts for 74 per cent market share • The ice-cream market in India is estimated at US$ 226 million, with the organized market at US$ 158.2 billion. This is currently growing at 20 per cent
31
Fruits and Vegetables
India produces the widest range of fruits and vegetables in the world. It is the second largest vegetable and third largest fruit producer accounting for 8.4 per cent of the world’s food and vegetable production. The share of organised sector in fruit processing is estimated to be nearly 48 per cent. Fruit production in India registered a growth of 3.9 per cent during the period whereas the fruit processing sector grew several times faster at 20 per cent over the same period. The total area under fruit cultivation is estimated at 4.18 million hectares. The total area under vegetable cultivation is estimated at 7.59 million hectares. However less than 2 per cent of the total vegetables produced in the country are commercially processed, as compared to nearly 70 per cent in Brazil and 65 per cent in USA. India’s installed capacity for fruits and vegetable processing nearly doubled during the , from 1.1 million tonnes in to 2.33 million tonnes . About 20 per cent of processed fruits and vegetables are exported. Major products exported include fruit pulps, pickles, chutneys, canned foods, concentrated pulps and juices and vegetables. Fruit exports have registered a growth of 16 per cent in volume and 25 per cent in value terms. Mango and mango based products alone constitute 50 per cent of the exports. Grain Processing
India produced nearly 209.32 million tonnes of grains. India’s production covers all major grains – rice, wheat, maize, barley and millets like jowar, bajra and ragi. It ranks third in the production of grains in the world. With a share of 40 per cent, grain processing is the biggest component of food sector. Primary processing constitutes 96 per cent with the remaining accounted for by the secondary and tertiary sectors. Total rice milling capacity in the country is 186 million tonnes. There are about 516 large flour mills in the country, as well as about 10,000 pulse mills. Meat and Poultry Processing
India has the largest number of livestock population in the world accounting for 50 per cent of buffaloes and 16 per cent of the goat population. Meat production grew at a CAGR of 34 per cent during the period 1999-2004 and stood at US$ 12.44 million in 2005-06. Meat exports stood 32
at US$ 0.104 million in 2005-06. Most of the animals in India are not bred for meat. Animals generally used for production of meat are cattle, buffaloes, sheep, pigs and poultry. Only 11 per cent of the buffalo population, 6 per cent of the cattle, 33 per cent of the sheep and 38 per cent of the goat population is culled for meat. Consumption per head of both fresh and processed meat is very low at 1.5 kg compared with world average of 35.5 kg. Indian poultry meat market was approximately US$ 2.03 billion in 2005. Indian broiler industry has seen a rapid growth in the last few years - CAGR of more than 10 per cent a year since 1998. Fisheries
India is the third largest fish producer in the world and second in in-land fish production. The Fisheries sector in India has been classified into marine, inland and aquaculture. The fisheries sector contributes 1.1 per cent to the country’s GDP. This segment also provides employment to 11 million people engaged fully, partially or in subsidiary activities pertaining to the sector. India’s fish production stood at a level of 6.4 million tons in 2004-05. Of this, about 60 per cent (3.9 million tons) came from marine resources. Currently fish processing is mostly targeted for export markets. There are over 369 freezing units with a daily processing capacity of 10,266 tonnes and 499 frozen storage units with a capacity of 134,767 tonnes. Processed fish product exports include conventional block frozen products, individual quick frozen products and minced fish products like fish sausage, cakes, cutlets, pastes etc. Export of marine fish products touched of US$ 1.48 billion during 2004-05. Exports showed an increase of 11.97 per cent in volume and 11.1 per cent in value realisation. Frozen shrimp is the largest item in terms of value contributing to 63.5 per cent of the total exports, and frozen fish is the largest in terms of volume contributing to 34.62 per cent. Consumer Foods Including Packaged foods, Beverages and Packaged Drinking Water Packaged Foods
Packaged foods segment in India registered a growth of 8 per cent in 2005-06. Noodles/Vermicelli is the fastest growing category in this segment with a CAGR at 15 per cent. The market for branded noodles is estimated at 230 million servings per year. The Soups market 33
is still small and nascent in India and is approximately US$ 14 million in value. The market for culinary products is estimated at US$ 475,000 and estimated to grow at 18 to 20 per cent per annum. Products like Tomato Ketchup and Jams currently have low penetration levels, but are growing rapidly. Ketchups, for example, have a penetration of just 3 per cent in India; however this category is estimated to be growing at 20 per cent per annum. Beverages
The beverages market primarily consists of non-alcoholic beverages which can be broadly classified into carbonated drinks, non-carbonated drinks and hot beverages. This segment is estimated at US$ 155 million out of which fruit juices and fruit-based drinks account for US$ 60 million. The market size of organised carbonated drinks is estimated at US$ 119 million. In the past decade the carbonated drinks market registered a healthy growth rate of 20 per cent, driven by the positive changes in India’s consumer profile. Hot beverages include health drinks such as white beverages (‘Horlicks’ etc) and brown beverages such as tea/coffee as well as branded drinks (Eg: ‘Boost’). The total size of this market is estimated at US$ 333 million by value and 85,000 tonnes by volume. White beverages account for 65 per cent of the market and brown beverages constitute the remaining 35 per cent India is the largest producer of tea in the world accounting for 28 per cent of the total global production, at 857 million kgs. Tea production in India has been growing at 1.2 per cent per annum and India is the fourth largest exporter of tea in the world with estimated exports of US$ 5 million in 2002-03. India is also the fifth largest producer of coffee accounting for 4 per cent of the total production in the world. Nearly 75 per cent of India’s production is exported and coffee exports stood at US$ 5.2 million in 2005-06. Staples – Bread, Wheat Flour, Salt and Sugar
Bread is slowly coming to be a staple product consumed by people of all economic classes in India. Total bread production in the country in 2004-05 was estimated at 2.7 million tons, growing at 7.5 per cent. About 55 per cent of bread production comes from the organised sector. India is the second largest producer of wheat in the world with an output of more than 70 million tonnes. Branded ‘atta’ (wheat flour) is an important item in this segment with an estimated market of US$ 195 million. 34
India’s Strengths in Food Processing Favourable Factor Conditions
India has access to several natural resources that provides it a competitive advantage in the food processing sector. Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material base suitable for food processing industries. Presently a very small percentage of these are processed into value added products. The semi-processed and ready to eat packaged food segment is relatively new and evolving. India has the largest irrigated land in the world. It is also world’s largest producer of milk, tea and pulses. India has large marine product and processing potential with varied fish resources along the 8,041 km coastline, 28,000 km of rivers and millions of hectares of reservoirs and brackish water. India also possesses the largest livestock population in the world with 50 per cent of world’s buffaloes and 20 per cent of cattle. India’s comparatively cheaper workforce can be effectively utilised to set up large low cost production bases for domestic and export markets. Cost of production in India is lower by about 40 per cent over a comparable location in EU and 10-15 per cent over a location in UK. Along with these factor conditions, India has access to significant investments to facilitate food processing industry. There have been increasing investments not only by domestic firms and Indian government, but also foreign direct investment Related and Supporting Industries
The Indian food processing industry has significant support from the well developed R&D and technical capabilities of Indian firms. India has a large number of research institutions like Central Food Technological Research Institute, Central Institute of Fisheries Technology, National Dairy Research Institute, National Research and Development Centre etc. to support the technology and development in the food processing sector in India.
35
Government Regulations and Support
The Government of India has taken several iniatives to develop the food processing industry in India. One indication of the importance that the sector receives is the hiking of the present outlay for the sector from US$ 19.5 million in 2004-05 to US$ 41.35 million the next year, more than twice the earlier amount. The government has been developing agri-zones and the concept of mega food parks to promote food processing industry in India. It is considering investing US$ 22.97 million in at least 10 mega food parks in the country besides working towards offering 100 per cent foreign direct investment and income tax benefits in the sector. In order to promote investment in the food processing sector, several policy initiatives have been taken during recent years. The national policy aims to increase the level of food processing from 2 per cent to 10 per cent in 2010 and to 25 per cent in 2025. Some of the initiatives include: • The level of institutional credit to be provided by banks and FIs has been increased from US$ 17.41 billion during 2003-04 to about US$ 23.76 billion in 2005-06 • Allowing full repatriation of profits and capital • Automatic approvals for foreign investment up to 100 per cent, except in few cases, and also technology transfer • Zero duty import of capital goods and raw material for 100 per cent export-oriented units. Customs duty on packaging machines reduced. Central excise duty on meat, poultry and fish reduced to 8 per cent • Income tax rebate allowed (100 per cent of profits for 5 years and 25 per cent of profits for the next 5 years) for new industries in fruits and vegetables besides institutional and credit support • Allowing sales up to 50 per cent in domestic tariff area for agro-based, 100 per cent export oriented units • Government grants given for setting up common facilities in Agro Food Park. 36
• Full duty exemption on all imports for units in export processing zones. The liberalised overall policy regime, with specific incentives for high priority food processing sector, provides a very conducive environment for investments and exports in the sector. Investments Required in the Food Processing Sector
India requires an investment of US$ 28 billion to bring the level of processing to 10-12 per cent by 2012. The following areas of investment have been identified by the Ministry of Food Processing: • Mega food parks • Agri-infrastructure and supply chain integration • Logistics and cold chain infrastructure • Fruit and vegetable products • Animal products, meat and dairy • Fisheries and sea food • Cereals, consumer foods and ready-to-eat foods • Wine and beer • Machinery and packaging
37
Critical Success Factors for Manufacturers in this Sector
The Indian food processing industry’s growth potential cannot be disputed; however, it requires certain competencies and success factors to fructify this potential.These include addressing the current gaps in the value chain as well as leveraging on the various advantages the country provides. Investors in the sector need to be aware of these factors and build the required capabilities in their business to ensure success. Some of the key success factors are discussed below. Integrated Supply Chain and Scale of Operations
While India ranks second in production of fruits & vegetables, nearly 20 to 25 per cent of this production is lost in spoilage in various stages of harvesting. The key issues are poor quality of seeds, planting material and lack of technology in improving yield. Ensuring good quality produce entails investments in technology and ability to sustain a long gestation period for the harvest. Good quality production also results in better quality of processed fruits. Hence there is a need to establish backward linkages with the farmers with the help of arrangements such as contract farming to improve the quality of the produce. Scale is a key factor in the processing industry. Nearly 90 per cent of the food processing units are small in scale and hence are unable to exploit the advantages of economies of scale. This is also true with land holdings. The country has only 3600 slaughterhouses, 9 modern abattoirs and 171 meat processing units, and a limited number of pork-processing units. This is one of the reasons penetration of processed meat is extremely poor at 1 per cent in India. These figures indicate both the need for scale, and the potential for growth offered by the sector. Processing Technology
Most of the processing in India is currently manual. There is limited use of technology like precooling facilities for vegetables, controlled atmospheric storage and irradiation facilities. This technology is important for extended storage of fruits and vegetables in making them conducive for further processing. In the case of meat processing, despite the presence of over 3600 licensed slaughter-houses in India, the level of technology used in most of them is limited, resulting in low exploitation of animal population. Bringing in modern technology is an area that existing as
38
well as new investors in the sector can focus on, this will make a clear difference in both process efficiencies as well as quality of the end product. Increasing Penetration in Domestic Market
Most of the processing units are export oriented and hence their penetration levels in the domestic market are low. For example, • Penetration of processed fruits and vegetables overall is at 10 per cent • The relative share of branded milk products especially ghee is still low at 2 per cent • Penetration of culinary products is still 13.3 per cent and is largely tilted towards metros • Consumption of packaged biscuits for Indian consumers is still low at 0.48 per cent while that for Americans is 4 per cent. However, there is increasing acceptance of these products amongst the urban population. India has a large untapped customer base and even a small footprint in the domestic market would enable the player to gain significant volumes. The Indian food processing industry’s growth potential cannot be disputed; however, it requires certain competencies and success factors to fructify this potential. These include addressing the current gaps in the value chain as well as leveraging on the various advantages the country provides. Investors in the sector need to be aware of these factors and build the required capabilities in their business to ensure success. Some of the key success factors are discussed below. Integrated Supply Chain and Scale of Operations
While India ranks second in production of fruits & vegetables, nearly 20 to 25 per cent of this production is lost in spoilage in various stages of harvesting. The key issues are poor quality of seeds, planting material and lack of technology in improving yield. Ensuring good quality produce entails investments in technology and ability to sustain a long gestation period for the harvest. Good quality production also results in better quality of processed fruits. Hence there is a need to establish backward linkages with the farmers with the help of arrangements such as contract farming to improve the quality of the produce. Scale is a key factor in the processing industry. Nearly 90 per cent of the food processing units are small in scale and hence are unable to exploit the advantages of economies of scale. This is also true with land holdings. The country has only 3600 slaughterhouses, 9 modern abattoirs and 171 meat processing units, and a limited number of pork-processing units. This is one of the 39
reasons penetration of processed meat is extremely poor at 1 per cent in India. These figures indicate both the need for scale, and the potential for growth offered by the sector. Processing Technology
Most of the processing in India is currently manual. There is limited use of technology like precooling facilities for vegetables, controlled atmospheric storage and irradiation facilities. This technology is important for extended storage of fruits and vegetables in making them conducive for further processing. In the case of meat processing, despite the presence of over 3600 licensed slaughter-houses in India, the level of technology used in most of them is limited, resulting in low exploitation of animal population. Bringing in modern technology is an area that existing as well as new investors in the sector can focus on, this will make a clear difference in both process efficiencies as well as quality of the end product. Increasing Penetration in Domestic Market
Most of the processing units are export oriented and hence their penetration levels in the domestic market are low. For example, • Penetration of processed fruits and vegetables overall is at 10 per cent • The relative share of branded milk products especially ghee is still low at 2 per cent • Penetration of culinary products is still 13.3 per cent and is largely tilted towards metros • Consumption of packaged biscuits for Indian consumers is still low at 0.48 per cent while that for Americans is 4 per cent However, there is increasing acceptance of these products amongst the urban population. India has a large untapped customer base and even a small footprint in the domestic market would enable the player to gain significant volumes. Segment-wise Attractiveness of Processed Foods
India presents several potential growth areas in the food processing sector. Based on our assessment of the potential growth opportunities and the enabling environment in terms of policy support, three key segments have been identified that indicate high attractiveness.
40
These are discussed below: Mass market basic foods – Fruits & Vegetables , Poultry, Meat and Fisheries Fruits and Vegetables Segment
Several factors make the fruits and vegetables sector in India attractive from a market size and growth perspective. As mentioned, India is a significant producer of fruits in the world, contributing to 10 per cent of global production. The fruits and vegetables sector is growing rapidly at a healthy rate of 20 per cent per annum. It is however nascent, with penetration level of about 10 per cent. These factors indicate the high growth potential in the sector. This is also highly unorganized at present, with the unorganised sector at 48 per cent share, indicating the scope for organised players to make an impact. Several policy measures have been undertaken by the Government to create the right stimulus for growth in this sector. Some of the key initiatives include: • Foreign equity participation up to 51 per cent allowed. Initiatives like post-harvest management, logistics given priority in attracting FDI • Complete exemption from excise duty • Income tax rebate of nearly 100 per cent of profits for new industries in fruits and vegetables sector • Many fruits and vegetables processing industries eligible for automatic approval of technology upgradation Meat, Poultry and Fisheries Segment
The meat, poultry and fisheries segment is another high potential area that has the advantage of several favorable factor conditions. In terms of raw material, India has the best supply of livestock in the world, accounting for 50 per cent of buffaloes and 16 per cent of the goat population. India also ranks third in the world in production of fisheries. As mentioned earlier, the bulk of the livestock is not bred for slaughter. There is a large potential for setting up modern slaughter facilities and development of cold chains in meat and poultry processing sector. In the fisheries segment also, India’s long coastline and network of inland waterways and lakes, offers plentiful availability of different types of fishes. Fishery resources in India are seriously under-utilised. The Government has also taken up several initiatives to encourage investment and growth in this segment. 41
These include: • Foreign Equity participation allowed in the fisheries sector subject to approval. Foreign investment proposals on nearly US$ 210 million have been approved in the sector • Financial assistance given for setting up of processing infrastructure like IQF plants, refrigerating transport equipment, freezing plants • Excise duty on meat poultry and fisheries reduced from 16 per cent to 8 per cent Mass Market Value-Added Products- Dairy, Bakery
India is the world’s largest milk producer and dairy is the one of the most promising segments of food processing. Demand for dairy products is expected to grow at a healthy rate of 15 to 20 per cent over the next five years. The segment offers a high potential for value add – the level of processing value add, at 37 per cent, is amongst the highest in the food processing industry. At the same time the share of organised players is still small, at 15 per cent, indicating the potential for growth for organised players. Bakery products is a related segment that has also been growing strongly, at about 7.5 per cent. The segment is still highly fragmented, though organised players have nearly 55 per cent share of output. Both these segments, while indicating attractive growth potential, have also been focus areas for policy support by the government. • Foreign equity participation permitted to the extent of 51 per cent in dairy processing sector • De-reservation of many segments like ice-cream and ghee from small-scale industries • Excise duty of 16 per cent on dairy processing machinery fully waived for promotion of dairy processing • Subsequent to decanalisation, exports of some milk based products are freely allowed provided these units comply with the compulsory inspection requirements of concerned agencies like the National Dairy Development Board, Export Inspection Council, etc. Niche Market Foods - Snack Foods, Ready-to-Make Foods, Packaged Foods
This business is characterised by high volumes and low margins. Penetration levels are yet quite low in this segment, with product acceptance largely restricted to the urban population. Product innovation and branding play a key role in success of these products. As such, this segment could
42
be an attractive option for multinational companies with established brands and strengths in innovation, to enter and get established in India. The Government has been supporting this segment through policy initiatives such as: • Automatic approval of foreign equity participation up to 51 per cent • Income tax rebate of 100 per cent of profit for five years and 25 per cent of profits for the next year for packaging of foods. Backward Integration – Emerging Business Model
The generic value chain of the food processing industry from raw materials to retail to the consumer, is shown below. Traditionally, different players across the value chain played the different roles and worked more or less independently. Recently, the trend has been towards increasing integration and collaboration across players in the value chain, to garner mutual benefits. Such integration is being driven by the manufacturers, who are looking to integrate backward and establish linkages with both raw material producers (farmers) and aggregators/logistics providers. These links have led to two new models emerging in the sector – Contract Farming and Terminal Markets. These are further discussed below. Contract Farming
Contract Farming is an agreement between the food processor (contractor), who is typically a large organized player, and the farmer, whereby the farmer is contracted to plant the contractor’s crop on his land. He also agrees to harvest and deliver to the contractor a quantum of produce, based upon anticipated yield and contracted acreage at a pre-agreed price. The food processor provides inputs in terms of technology and training to the farmer, to improve the yield and quality of the produce. This results in a win-win situation that generates a steady source of income for the farmer and eliminates supply shocks and assures good quality farm inputs which are crucial for the processor. The Government of India has been actively encouraging contract farming endeavours. The National Agricultural Policy envisages that ‘private sector participation will be Inputs Contract Farming The farmer is contracted to farm on his land and the produce of an agreed yield and quality is bought by the processor at an agreed price Terminal Markets Jointly participate through investments in a one-stop modern market offering grading, sorting, electronic auctioning, quality testing, cold storage and banking facilities. 43
FOOD Processing
Encouraged through contract farming and land leasing arrangements to allow accelerated technology transfer, capital inflow and assured market for crop production’ Successful Contract Farming in India
A good example in this area has been Pepsi Foods’ experience with contract farming for its tomato processing plant at Hoshiarpur in Punjab. Through transfer of technology and providing good quality seeds and inputs to farmers, Pepsi was able to substantially increase both quality and quantity of tomato production in the area, so as to meet the demands of its plant. A key aspect of Pepsi’s approach was its partnership with local bodies such as the Punjab Agricultural University and Punjab Agro Industries Corporation Limited, which went a long way in getting the farmers’ buy-in and ensuring success of the venture. Terminal Markets
A Terminal market is a central site, often in a metropolitan area, that serves as an assembly and trading place for agricultural commodities. Here there are different options for disposing off the produce. It can either be sold to the end consumer, or to the processor, or packed for export, or even stored for disposal at a future date. It thus offers different options to farmers under a single roof. Typically, terminal markets operate on a hub and spoke model where the markets form the hubs, and are linked to different collection centres (spokes) that are located close to the production centres. The typical value chain structure for a terminal market, as well as the key activities and corresponding infrastructure requirements at each level, are depicted in the figure below: The Government of India is looking to promote terminal markets, as a means of integrating domestic produce with retail chains. There are plans to set up such markets in eight cities across five states, at a cost of US$ 131 million. The cities being considered are Mumbai, Nashik, Nagpur, Chandigarh, Rai,Patna, Bhopal and Kolkata.
44
45
India has made lot of progress in agriculture & food sectors since independence in terms of growth in output, yields and processing. It has gone through a green revolution, a white revolution, a yellow revolution and a blue revolution. Today, India is the largest producer of milk, fruits, cashew nuts, coconuts and tea in the world, the second largest producer of wheat, vegetables, sugar and fish and the third largest producer of tobacco and rice. Now the time is to provide better food processing & its marketing infrastructure for Indian industries to serve good quality & safest processed food like ready to eat food. It is opening a new window in world scenario as far as taste & acceptance is concerned. Therefore, Indian Government is providing more infrastructure for this sector. Excise duty is now ZERO % on RTE and 100 % tax deduction for the first 10 years for new units. This allows manufactures to bring down their prices & spreads its flavors to the world. The retort processed foods do not require rehydration or cooking and can be consumed straight from the pouch with or without pre-warming, depending upon the requirement of the users and the weather conditions. These foods meet the specific needs of convenience, nutritional adequacy, shelf stability, storage, distribution to the centers and have become very popular after the year 2002. Some of the mouth-watering dishes in retort pouches include sooji halwa, upma, chicken curry, mutton curry, fish curry, chicken madras, chicken kurma, rajma masala, palak paneer, dal makhnil, mutter paneer, potato-peas, mutter mushroom, vegetable pulav chicken pulav, and mutton pulav, etc. The pioneer introduction of retorting technology has made the sale of ‘Ready-to-Eat’ food products commercially viable with great taste.
CONCEPT
•
Ready to Eat Meals like already cooked or prepared lunch & dinner are relatively new products which came in market only a few years back and are now sold through retail general stores in especially made sealed aluminum laminates. • The retorting or sterilization process ensures the stability of the Ready-to-Eat foods in retort pouches, on the shelf and at room temperature. The application of sterilization technology completely destroys all potentially harmful micro-organisms, thereby making sure that the food product has a very long shelf life of over 12 months and needed no refrigeration. • When customer needs to eat, the food item pouch is either put in microwave oven to warm it or keep in heated water for a few minutes and then serve to eat. • Such ready to eat meals have been especially given to soldiers in army of many countries who require carrying their rations while on war front or while located far away from their main unit. • The advertisements like, "Hungry Kyaa" are adding zest to the market by popularizing such food items which are pre-cooked and free from any preservative, and yet have a long shelf life of over 12-months. These food items are normally selling in pouches, well packed in cardboard printed boxes of small book size and carry about 300 grams of 46
cooked food at a price of about Rs. 40 to 200 in foreign market depending upon the type of dish packed. One packet of vegetable dish is normally sufficient for one meal for three persons and therefore falls in economic zone of consumer’s preferences. WHY READY TO EAT FOOD •
• • • • • • •
Globalization of Indian food and its culture are the core factors for popularization of ready to eat foods. Main motivation for these ready to eat foods is fast growing foreign market. Retail outlet culture is now growing rapidly in India. Shelf- life of these foods are at least 12-18 months. Quality, Taste and Flavor of these foods remains as good as fresh up to the expiry date. Women wanting to spend more time out of the kitchen. More working bachelors staying away from homes. Cost effective in comparison to the Indian cuisine served by the restaurants in foreign countries.
TYPES OF READY TO EAT FOOD Veg Food
Non Veg Food
Alloo Matar Palak paneer Sarso Ka Saag Chana Masala Kadi Pakora Cheese Tomato Dal Makhani Rajma Masala
Chicken Curry Butter Chicken Karahi Chicken Mughalai Chicken Mutton Masala Mutton Korma Karahi Mutton Mutton Biryani
Deserts
Gajar Ka Haluaa / Sugi Ka Haluaa / Milk Kheer
PLAYERS IN READY TO EAT FOOD MTR • Kohinoor Foods • ITC • Haldiram • Tasty Bites • RETORT & ITS PACKAGING
The water RETORT is an equipment or vessel or sterilization module through which steam (at 130 degree centigrade for 25 minutes) is applied on food products packed in retort pouches. The retorts use water or steam/air combination as processing medium to heat the container/packages. Compressed air or additional steam is introduced during the processing cycle 47
to provide the overpressure (any pressure supplied to the retort in excess of that which can be normally achieved under steam at any given retort temperature). Overpressure is important in preventing package damage or loss of seal integrity (like bursting), during the heating process. Retort pouches is a flexible packaging material that basically consist of laminates or bounded layers of different packaging films of Polyster-Nylon-Aluminium-polypropylene that can withstand high process temperature & pressure. Their most important feature is that they are made of heat-resistant plastics unlike the usual flexible pouches. This makes the retort pouches unique which are suitable for the processing of food contents at temperatures around 120 degrees Celsius. That is the kind of ambient temperature prevalent in the thermal sterilization of foods. There is lesser time to spend in cooking food themselves and so ready to eat foods are preferred. To get the food of different cultures, taste etc, it is important that food has good shelf life so that it can be made available at far off places too and then can be conveniently consumed also. ADVANTAGES OF RETORT PACKAGING
• Pouch laminates permits less chance to overcook during the retorting thus products • • • • •
having better color, texture & less nutrients loss. It requires less energy for sterilization. It requires less disposal & storage space. Low oxygen & moisture permeability. Shelf stable for longer time & requires no refrigeration. Sun light barrier, light weight, easy to open.
MARKET & ITS GROWTH
• The popularity of ready to eat packed food now is no longer marks a special occasion. • • • • •
Peoples want value for time, money in terms of quality and variety. The food processing industry is one of the largest industries in India and it is the ranked fifth in terms of Production, Consumption, Export & Expected growth. Processed food market in India accounts for 32% that is Rs. 1280 billion or 29.4 billion US $ in a total estimated market of Rs. 3990 billion or 91.66 US $. Euromonitor International, a market research company says that amount of money Indian spend on ready to eat snacks & food is 5 billion US $ in a year while on abroad Indian or Indian subcontinents spend 30 billion US $ in a year. Ready to eat packaged food industry is over Rs. 4000 crore or 1 billion US $ and it is growing at the rate of 20 % per annum. Ready to eat food market is developing specifically in UK, USA, Canada, Gulf & South Asian Countries with the growth rate of over 150 % per annum.
48
49
For my research the area covered by me was Delhi/NCR and the target group was mainly people from 25 to 50 years of age. Areas which I covered for my research work are South Delhi, East Delhi, West Delhi, Gurgaon, Noida and Ghaziabad. The research was done mainly through questionnaire and the population size was taken about 200. Outlets which I visited were: •
Big Baazar
•
More
•
Spencer
•
Vishal Mega Mart
•
Big Apple
•
Reliance Fresh
Malls: •
EDM
•
CSM
•
Great India Place
•
Pacific
•
Ansal Plaza
•
Shopprix
•
Shipra Mall
•
City Square
50
•
Ambience
•
V3s
INCOME-CONSUMPTION GRAPH IN READY TO EAT SECTOR Here I found that the people whose income ranges from 40,000-80,000 are more frequent buyer of ready to eat food.
51
WEEKLY CONSUMPTION ON AGE BASIS People of age group 25-35 buy more frequently than any other.
SALES PATTERN OF READY TO EAT FOOD IN VARIOUS FORMATS The sales of Ready to Eat food is more in Malls than any other formats.
52
The main reason why people buy Ready To Eat Food is due to its time saving factor.
After my research I found that the taste and trends of areas in NCR are quite different. The taste and trends also varies from age group to age group and from profession to profession. The people in south and west delhi are basically somewhat in higher income group and they don’t mind going in for packaged foods instead of cooking the food at their home. When I communicated with them I found that there eating habits are changing as they have less time to cook food or they have surplus money so their spending habits for these packaged foods is changing. They don’t mind going for these packaged foods rather than cooking three to four times a week. So I found that even in the kirana shops which are not of organized retail type have also stated keeping these kinds of stuffs. When I talked with these kirana shops owner they also told that the demand of these types of food products are increasing and people asks for different varieties of package and frozen foods. When I went to the organized retail types like Big Bazaar, Reliance Fresh etc. I found that they have many racks of these foods as well as different sections for frozen foods also which included frozen meats, cutlets, fried fishes, soybeans etc. The main brands I saw in these stores were MTR, ITC and some foreign brands like Kraft foods and 53
Campbell. But the people are keen in buying Indian brands. So my conclusion for this area is that the FMCG companies have a potential market and a dissent customer base for expansion of these kinds of food items. When I visited east delhi the trend here was quiet different from which I saw in western and southern delhi. The people here are mainly middle class or students. When I talked to them I got an idea that around fifty percent were not aware what is ready to eat foods. The other half of the population was also preferring to cook the food at their home. There I saw many small eating outlets supplying foods to these students at much cheaper rate to these students. The income of people are not that high so they prefer to cook the food at home and not spending much on these costly food items. When I went to the kirana stores of these areas there also I found that there is low demand of these products. But in Malls I found that organized retail shops are keeping these food products. But there sale is low. So my conclusion for this area is that this market area does not have much potential for these food products and FMCG companies still has a long way to go ahead. During my visit to Gurgaon I found that the people are mainly working class and BPO culture flourishing there. Being in a city where the trend of double income has developed and both husband and wife are working and busy throughout the day in the office so they are going in for these packaged foods. The salary package offered by the MNCs are also high so they don’t mind paying much for their convenience. In BPOs also the timings of Husband and Wife don’t mach so they alone prefer to buy these foods instead of going for cooking. Talking about the kirana stores and orgainsed retail of this area I found that they are having a higher sales volumes as compared to Delhi region because the people here buy these items due to there needs not for there delight. The fmcg companies here enjoy high volume of sales. Now coming on to the Noida and Ghaziabad region here I saw a mix bunch of people students, professionals, business man and higher and middle income people both. The students also are basically from management and engineering colleges and are of higher spending capacity than that of east delhi. Leaving behind certain sectors of Noida and Ghaziabad rest all areas this packaged food is a big hit and shops and kirana stores and organized retail outlets are keeping every variety and brand of these food items. So I can say that the FMCG companies are not finding it much difficult in selling these food products. 54
55
From my research I found that the main reason for purchase of Ready To Eat food is their time saving factor. The taste and the nutritional value is not so up to the mark. Also the availability is limited mainly to the retail outlets in Malls or Big shops. The awareness level to these foods also is very low, since most of the people were not aware of ready to eat foods. Also since this sector is heavily dependent upon the agriculture industry so the continuous availability of raw materials is also a major challenge. Suggestions for FMCG companies: 1. Increase the visibility of these products in organized retail outlets. 2. Organize sum awareness programs so that mass could know about these products. 3. Increase the variety of the products in Chinese section.
56
4. Should try to increase these products so that it can reach every locality and could be consumed by the masses. 5. Organize some workshops in schools so that children also get to know about these products. 6. Company may also increase the advertisements. 7. May also launch a new product range for price conscious customers.
Questionnaire
1. 2. 3.
4.
Name: Occupation: Monthly Income: a. less than 10,000 b. 10,000 – 25,000 c. 25,000 – 50,000 d. More than 50,000 Address: 57
5.
Phone no.:
6.
If You are not cooking at home what do you prefer? a. Going To Restaurant b. Buying Ready to Eat Food c. Eating at roadside vendor d. others
7.
How many times you go for foods not made at home? a. Once in a week b. One to three times a week c. More than three times a week d. None
8. What do you see before buying the food items? a. Taste b. Price c. Nutrition Value d. Others 9. Have you ever had ready to eat foods? a. Yes b. No 10. If
yes what made you buy these packaged foods? a. Time saving factor b. Taste c. Nutirition value d. Others
11. Would
you want to repeat your buying? a. Yes b. No 58
c. Can’t Say 12. Do
you find it fully safe for your children? a. Yes b. No
13. Are
you price sensitive buyer? a. Yes b. No
14. Are
these foods easily available in your locality? a. Yes b. No
59
