BRICs and beyond: Danone enters India's buoyant infant-formula market
India's infant nutrition sector is expanding rapidly and it is set to have a new entrant - Danone. Last week, the French food group struck a deal to buy the nutrition business of local company Wockhardt Group, a move that means it will compete head on market leader Nestle.
Danone's acquisition of the nutrition business of India's Wockhardt Group will, if approved, give the French dairy multinational entry to a fast-growing, infant formula market expected to reach US$700m by 2014-15.
"It is the largest segment of the baby food market in India," Pratichee Kapoor, associate director at Indian management consultants Technopak, tells just-food. "It is estimated to be US$400m and growing at a compound annual growth rate of 12%."
Growth is being driven by increased nutritional awareness, more young working mothers, rising affluence among the country's nuclear families and the sheer number of births.
"With over 25m children born each year, India is the fastest-growing infant nutrition market in the world," Danone said of the entire market beyond just infant formula, which mimics breast milk and is aimed at 0 to 12 month olds.
In 2007, India's National Family Health Survey reported that 44% of children under five in India were underweight, so Danone sees "significant potential" for fortified infant feed.
Awareness and demand for infant formula are greatest in the major conurbations. Some 86% of households in large metropolitan cities such as Mumbai and Delhi expressed a preference for weaning (infant formula) foods in a survey of 3,000 homes by the Association of Chambers of Commerce and Industries of India. These include brands such as Wockhardt's Farex and Nestle Nan Lactogen and Nestogen.
Consumers in smaller cities still prefer traditional products such as lentil soup, semolina and rice porridge to wean infants off breast milk. Danone believes this can change and says the acquisition gives it a strong launch pad from which to benefit.
"Strong brand awareness of Wockhardt's Dexolac, Farex and Nusobee baby nutrition products, and their credibility with healthcare professionals, will accelerate Danone's entry into the country's baby nutrition market," the company said after it announced the deal last week.
Raising awareness of infant formula among Indian mothers is a subtle business. National legislation based on the World Health Organization's International Code of Marketing of Breast-milk Substitutes restricts advertising. Although infant formulas are becoming progressively more like breast milk in composition, health authorities worldwide advise mothers that 'breast is best' in passing on natural immunity before a child's own immune system kicks in.
The major purchase influencers in India are recommendations from physicians, paediatricians and gynaecologists. Nestle started a 'Start Healthy, Stay Healthy' campaign in 2010 in collaboration with doctors to reinforce the importance of infant nutrition.
Danone is acquiring Wockhardt's overall nutrition business and brands. It also gets a related contract manufacturing business and factory from Wockhardt's listed subsidiary Carol Info Services as part of the deal. The near EUR250m purchase will leave Wockhardt focused on its human pharma business.
Danone has stepped in where US healthcare giant Abbott Laboratories chose not to go. Abbott's prior agreement to acquire Wockhardt's nutrition business was terminated last year by mutual consent after some Wockhardt creditors opposed the valuation. Danone is reportedly paying 2.7 times what Abbott offered.
Wockhardt is involved in a legal battle with Foreign Currency Convertible Bond holders and has sought Bombay High Court's legal approval for the sale to Danone. The case is scheduled for a September 6 hearing.
Assuming approval, Danone will be pitted against market leader Nestle, which has been in the country since 1912. It has a dominant position in infant formula with its leading Nan Lactogen brand having around a 75% market share. Nestle's wider infant nutrition portfolio also includes Nestogen infant formula and Cerelac and Nestum infant foods.
"About 85% of the Indian market share (for infant nutrition in general) was capitalized by Nestlé India in 2009-10," says Technopak's Kapoor. Nestle's entire milk products and nutrition business in India grew 20.1% to INR27.78bn in value terms during 2010.
"Nestle is typically capitalising on the brand it has built over time," says Eric Journel, project director at UBIC-Consulting, the international food, ingredients, and biotech marketing and consultants. "This is also the case with Wockhardt's Farex. Wockhardt's Nusobee is for lactose intolerant infants and is prescription driven, which is Wockhardt's strength."
Like other infant formula makers, Nestle is constrained by law in what it can say regarding its products and stresses that mother's milk is best and that what it terms "inappropriate breast milk substitutes" should be avoided.
"Nestle has continued to develop high quality nutritionally balanced infant foods for consumers who may need them," a Nestle India spokesman tells just-food. "It has a large portfolio to support the specific needs of mothers across the country, and while the Nestle Nutrition Institute helps in sharing science for better nutrition, Nestle SA is investing in local R&D to better understand the nutritional needs and find solutions."
Imported infant formula brands such as Similac Advance and Enfamil Lipil have a negligible presence in India and the grey market is non-existent.
Danone's entry – subject to legal approval – changes the competitive landscape. But such is the market's rate of growth and long-term potential that analysts see plenty of scope for producers. "The Indian market should keep growing rapidly, allowing room for more competitors," says UBIC's Journel.
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