SNACK FOOD INDUSTRY OVERVIEW Introduction Snacks are a part of Consumer Convenience/ Packaged Foods segment .Snacks food, which acts as a hunger quencher, is something away from main meal like breakfast or lunch or dinner. These are mainly consumed between meals either for enjoyment of its taste or brief supply of energy. Snack food generally comprises bakery products, ready-to-eat mixes, chips, namkeen and other light processed foods. Packaged snacks, which are convenient to consume and more appealing than prepared food, has become a big business. Shrinkage of formal lunchtime has created a new market segment with strong growth opportunities. Changing lifestyle like eating while working, playing games, Multiplex culture, snacking at home while watching TV, pubs and bars (where they are served free). etc has also created huge opportunities in this sector. Promotions and advertisements by the players in this sector are also assisting to boost this sector.
Global Overview The global snacks foods market will reach over $380 billion by 2017, according to a new report published by “Global Industry Analysts,Inc(GIA). Snack food markets in Asia Pacific and Latin America experienced growth, with nuts, tortilla and corn chips snacks showing strong growth rates of between 6% and 7%. The baked snacks category is the largest global product segment, with salted snacks showing strong growth. Within the salted snacks product group, potato chips, tortilla and corn chips and meat snacks are the largest product segments.Furthermore, an emerging trend in the global snack food market is the evolution of fruit snacks and nuts, as consumers become increasingly aware of the health benefits of snacks. According to the report, Europe is the largest global snacks market in terms of value, with the United States and Latin America as other significant markets. The Asia Pacific snacks foods market will post the highest growth rates, at 6% per year until 2015. The snack foods market contains many global players as well as regional private label companies, including General Mills, ConAgra Foods, Group Danone, Kellogg Company, Kraft Foods, Nestle, Nabisco, PepsiCo, Walkers Snack Foods and many other snack food manufacturers.
The US snacks market is not as fragmented and is characterised by the importance of innovation, the domination by one company - PepsiCo's Frito-Lay division and by the dominant product groups of potato chips, tortilla chips, snack nuts and corn snacks. PepsiCo is a leading player in the global snack foods market with a convenience foods business (Frito-Lay) that generates $13 billion in sales.
Indian Overview
According to an Apeda (Agricultural and Processed Food Products Export Development Authority) survey, there are about 1,000 snacks items and 300 types of savouries sold in the country . Salty snacks – whether potato chips, banana chips or crispies made of corn or wheat flour, just fried or baked for the health-conscious – today have usurped home-made savouries to become the first choice not just for people in the big cities but also in small-town India.
According to a study by McKinsey&Co, the Indian food market will grow two fold by 2025 with the rapidly growing Indian economy and improving lifestyles of Indians contributing in a big way to this growth. Quoting the study by McKinsey&Co, a report by the US Department of Agriculture stated "The market size for the food consumption category in India is expected to grow from US$ 155 billion in 2005 to US$ 344 billion in 2025 at a compound annual growth rate of 4.1 per cent."The Indian snacks market worth around US$ 3.5 billion is one of the largest snack markets in the Asia Pacific region , with the organised segment taking half the market share, and has an annual growth rate of 15-20 per cent. The unorganised snacks market is worth US$ 1.56 billion, with a growth rate of 7-8 per cent per year. Potato chips and potato-based items are the most popular products with more than 85 per cent share of the salty snack market, the report said. In the organised potato chips market, Pepsi and Haldiram's are some of the leading players. There is a big market for snacks in India as urban Indian consumers eat ready-made snacks 10 times more than their rural counterparts. Indians in the western regions eat the maximum amount of snacks, followed by the people in northern region."Consumers are willing to pay a premium for both value-added private and branded products, creating immense opportunities for manufacturers and retailers,' the report stated. "There is a widespread recognition in India that consumers are likely to replace light meals with snacks", it further added.
Success drivers Product innovation and new product development: To increase impulse purchase, new flavors and types are being added in the snacks. New products are region specific. In Southern states, banana chips are more popular, which is not widely accepted in other parts of the country.
From tastier to healthier: Now demand for healthier snacks is increasing – moving towards low fat or no fats. To meet the changing preference and demand, industries are focusing on healthy and tasty snacks. Now, manufacturers are gaining competitive advantage in the market through offering healthier snacks.
Technology: Application of modern technology has helped in enriching the quality of produce besides improved efficiency in processing.
Market penetration: Increasing acceptance of packaged snacks over the years among rural and semi urban market, besides urban markets has helped to build a large customer base in the country.
Product promotion and packaging: Snack foods are impulse purchase products. Purchase decision is made instantly if it catches the eye at the shop. With this background, the marketers’ emphasis is on attractive packaging and promotions. Attractive and appealing promotions and advertisement to convince customers especially children and youth has illuminated the path of this industry.
Good backward integration: Building strong backward linkage to ensure smooth supplies of raw materials and application of the concept supply chain management are gaining the momentum currently.
Challenges before snack food industry Rising ingredient cost: Snack food industries are depending upon raw materials, which are turning costlier in recent years. Procurement of raw materials at a competitive price is one of the key factors for success in this industry.
Higher investments: Small players in particular are facing the challenge with respect to higher investments on machinery, technology and market access.
Product pricing: It is one of the key factors, which drives sales. Low priced small packs are more popular both in the rural and the urban market. By adjusting the pack size, most of the players are meeting this needs currently.
The Players & Strategy
While Haldiram’s, one of India’s oldest traditional snacks makers, and PepsiCo with its Lays and Kurkure brands dominate the market, the last five years have seen more companies join the fray. Not so long ago, the unorganised players had a field day with the consumer opting for quantity over quality. The trend is slowly changing with rising incomes and health-consciousness. Brand consciousness is taking precedence over cost consciousness among a large section of consumers.
To PepsiCo goes the credit of expanding the organised snacks market. Till 1995, when PepsiCo introduced two brands Lays and Cheetos, there were only Haldiram’s and Amrit Agro that launched potato chips under the brand name Uncle Chips. When PepsiCo launched Kurkure in 1999, it became a runaway success. In 2000, Frito Lay India, a division of PepsiCo India, acquired the Uncle Chipps brand. And from then on there was no looking back. Aliva, the latest in its kitty, marks Frito Lay India’s creation of yet another category – borrowing ingredients and textures from biscuits and flavours from namkeens and is positioned as a healthier snacking option.
The next big leap happened in 2007, when fast moving consumer goods company ITC launched an array of potato chips and finger snacks products under the brand name Bingo! Within a year, it grabbed a market share of 9%. Bingo brought tastes which were familiar to the Indian taste buds but with a hint of unfamiliarity. The next innovation in the market came in lesser time. Parle Agro’s Hippo and Parle Products’ Smart Chips entered the market in 2009. It is the high pace of growth that has attracted a lot of players. The increase in competition has seen players launching their own versions of the popular snacks of their rivals.
Consumers now want variety and new tastes. They are not loyal to any particular brand. Another factor that has worked towards the shift from the home-made snacks to the branded packs is the price. It is challenging to give quality and quantity at the price points of Rs 5 and Rs 10. The bulk of the consumers are in the middle and lower middle classes. Therefore, affordability is what has driven the upsurge in the demand for snacks.
Even as there has been a proliferation of brands in the salty snacks category, there has been a gradual shift towards offering healthier snacking options. Whether it is the no trans fat tag or healthier snacks like Smart Chips or Aliva, consumers are looking for healthier alternatives in every food category. “What is driving innovation in the segment is the need to balance taste and health without compromising on one or the other and break this credit-debit lifestyle we live every day,” says Deepika Warrier, marketing director, Froto Lay India, PepsiCo.
Several manufacturers are putting new face on snacks. One is appropriately named Sensible Portions that presents a wide range of “better-for-you” snacks including “all-natural” choices such as multigrain crisps, pita crackers and pita chips. In addition to convenient packaging that gives built-in portion control, ingredients like whole grains, soya protein, vitamins, iron, and fibre are included and trans fats, saturated fats and cholesterol are avoided. It provides a healthier feel to snacking that is highly marketable.
Use of nuts in healthy snacks continued to rise including staples like almonds and cashews as well as exotics like pistachios and hazelnuts. Skinless almonds and cashews are roasted with real herbs and spices for extraordinary flavour. One line of almonds has been released with low-sodium sea salt, vinegar and bold wasabi soya variants . Another nut company introduced snack nuts that are gluten-free with all-natural ingredients and some organics like cocoa, vanilla extract and coconut.
Peanuts can support and complement a vast range of spices and flavours. Peanut is a canvas upon which one can display works of art, delivering healthy snacks. Fat in peanuts is also healthy which can help lower LDL cholesterol and the risk of cardiovascular diseases. It is an excellent source of protein.
The Road Ahead Indeed, Indians continue to show a great appetite for snacks. According to a survey conducted by electronics payments company VISA on mystery spending or cash spent but which cannot be accounted by consumers, Indians spend the second highest on snacks. The average mystery spending per week of young Indians in the age group of 18 to 24 years stood at Rs 383 of which almost 36% was on snacks. The total spending per year on snacks for one person thus stands at around Rs 7,000.
As per data from The AC Neilsen Company, the compounded annual growth rate for snacks in the rural market over the last two years stood at 26.7% as against 13.2% for urban areas. Though rural’s contribution is only about 33%, it’s growing much faster than the urban markets. Snack food industry has tremendous growth opportunities in the country. Growing population, rapid urbanization, changing consumer preferences etc are expected to keep the demand increasing in future too. With a well-integrated supply chain and a good marketing strategy, a tremendous opportunity lies for snack food industry in India.
