Escolar Documentos
Profissional Documentos
Cultura Documentos
in the
Packaged
Food Market
in India
Introduction 84
Introduction
India saw rapid economic growth fuelled by economic reforms during the period 2004 to 2007. FDI inflow
increased and GDP growth was at 8-10 per cent during the period.
The global economic downturn seen in 2008 had a deep impact on the economy with industrial output
slowing down and inflation increasing by two percentage points over the previous year to 8.3 per cent.
However, real GDP growth remained strong at 7.3 per cent.
With its vast population base, growing middle class and strong macro-economic environment, the Indian
market has seen processed food emerge as the one of its fastest growing segments. Rapid lifestyle
transformation, particularly in urban areas, has resulted in a dramatic increase in the demand for processed,
packaged and ready-to-eat food products.
The arrival of food multinationals and the proliferation of Quick Service Restaurants(QSR) outlets have
further added to the growth of this industry. The proliferation of modern retail trade and expansion of
supermarkets /hypermarkets, shopping malls and fast food outlets, coupled with favourable industry trends
is contributing to radical shifts in the Indian food and grocery industry.
The size of the packaged food market in India is estimated to be US$ 10 million and is expected to reach
US$ 20 million by the year 2014. Packaged food, which is now 4 per cent of the overall F&G market, is
expected to reach 5 per cent of F&G market by 2014.
The main categories of packaged food include baby food, bakery products, canned/ dried processed food,
confectionery, dairy products, frozen processed food, ice cream, meal replacement products, noodles,
nutrition/staples, pasta, ready meals, sauces, dressings and condiments, snack bars, soup, spreads,
sweet and savoury snacks, etc. Exhibit 1 summarizes the key players in the packaged food segment.
Growing and organised retail penetration is expected to aid the growth of the processed food market in
India. A number of categories which are highly dependent on organised retail-like frozen food products -
are expected to witness significant growth in the years ahead.
The larger food processing companies like Nestlé, Parle, Britannia etc., have diversified often over the
years. Nestlé’s foray into the pre-cooked noodle segment (Maggi noodles) from milk products-which
were its core competency-proved that there was a huge untapped market for packaged goods. Similarly,
Britannia, synonymous with biscuits, had boldly entered the space for milk products, with its range of
cheeses and later curd.
Convenience
The demand for ‘convenience’ is dominant in more than one segment. Apart from convenience in cooking
at home, food services and chains have an equally strong share in the purchase of packaged foods.
There was a strong focus on expanding consumer food service chains across urban areas which is set to
continue to grow. Consequently, urban commuters will enjoy easy access to trusted consumer food service
brands offering affordable food.
This demand for convenience also supported good growth in canned/preserved food and frozen processed
food, with consumers appreciating the convenience of stocking up and keeping easily-prepared food
at hand. Consequently, canned/preserved food saw 12 per cent current value growth in 2008 over the
previous year, while frozen processed food grew by 13 per cent.
Players will also seek to become first-movers in the niches of health and wellness packaged foods. Organic
products are thus likely to see strong development, generally targeting affluent urban consumers. Naturally
healthy products could also see a growing emphasis on their health benefits, with basmati rice, for example,
having its low glycaemic index emphasised on the packaging.
Exhibit 4 shows how the packaged food category has grown in China.
Aggressive advertising campaigns by food companies have led urban consumers to develop an increasing
interest in Western lifestyle trends. Urbanisation boosted sales of products such as breakfast cereals and
ketchup, which grew by 13 per cent each in current value terms in 2008 over the previous year. These
products are strongly advertised and benefited from a fashionable western image. Canned/preserved food
saw 12 per cent growth in 2008 over the previous year, while frozen processed food grew by 13 per cent.
Exhibit 5 shows the share of food and grocery sales in the organised and unorganised sector between
2005 and 2008 and its estimated growth in the next 6 years.
This is expected to drive strong growth in many product areas in meal solutions, with pouch instant noodles,
for example, set to see 115 per cent growth. These products offer a quicker and more convenient meal
18.5
350 14.7
11.7
6.1 8.1
300 4.3
3.3
250 2.9
2.1
US$ billion
1.4
200
150
100 195 216 237 266 277 288 298 307 316 326
50
0
2005 2006 2007 2008 2009P 2010P 2011P 2012P 2013P 2014P
component than rice and, thanks to their use of flavouring, can also be consumed as a snack. This trend
is also expected to benefit ready meals, canned/preserved food, frozen processed food and sauces,
dressings and condiments, all of which make food preparation quicker and more convenient.
frozen processed food, at 68 per cent and 79 per cent respectively. The channel’s most significant growth
was seen in impulse and indulgence products such as sweet and savoury snacks and ice cream and
dairy beverages. Share of supermarkets/hypermarkets grew from below 4 per cent in 2003 to 11 per cent
in 2008, challenging the regional dairies’ dominance in this area by offering good quality fresh milk at
affordable prices.
The technology for packaging products and increasing their shelf life is being developed and adopted very
rapidly. Along with the emergence of various forms of processed foods, a corresponding suitable packaging
technology is also developing. Milk is one product which is sold in four different types of packaging, with
each type further having different designs and forms.
Advances in packaging technology have not only improved the shelf life of products but also significantly
reduced the cost of packaging.
In addition to existing brands, a number of importers are also importing a significant amount of processed
food from European and South-east Asian countries. The imported product categories are targeted at the
premium segment of the market.
Exhibit 7 shows the increase in freezer space corresponding to the increase in number of stores in future.
Dairy products, confectionery and ready-to-eat products have received a robust boost in obtaining shelf
space and corresponding sales due to their positioning and supporting infrastructure.
1200
Freezer space (Cu.Ft)
200
900
No. of stores
The market for dairy products is currently estimated to be US$ 33 billion. The demand for dairy products is
expected to grow at a healthy rate of 15 per cent to 20 per cent over the next five years. The segment offers
a high potential for value addition-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.
Dairy segments have also been focus areas for policy support by the government with major initiatives
like:
• 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.
The processed food segment in India is currently at a very nascent stage. Changes on the demand as well
as supply side such as increasing urbanisation, need for convenience, health consciousness, increased
penetration of organised retail, improved cold chain infrastructure and entry of international players are key
drivers that will result in significant growth in the market.
Authors
Rohit Chadha, Associate Director| rohit.chadha@technopak.com
Rohit Bhatiani, Principal Consultant | rohit.bhatiani@technopak.com
Sajani Mrinalini Dutta, Associate Consultant| sajani.dutta@technopak.com