BRICs and beyond: Foreign firms face fight for India's biscuit market

By Mini Pant Zachariah | 18 March 2011

Kraft Foods' recent move to launch its Oreo biscuit brand into India has drawn attention to what is a growing sector in the country. India's biscuit market is attracting growing multinational interest but powerful domestic players already dominate the market and the jury is out over whether foreign companies can easily grab market share. Mini Pant Zachariah reports for just-food from Mumbai.

India's US$2.4bn biscuit market is drawing multinational companies to its shores. According to Euromonitor data, the sector is growing at 14% annually, so the channel holds much promise, but will the world's food giants have the nous to turn this local demand into significant profits?

Oreo, from US giant Kraft Foods, is the most recent international arrival to this multi-billion dollar biscuit party.

Last year, GlaxoSmithKline Consumer Healthcare launched high-end cookies and cream biscuits under its Horlicks brand, to join its existing value lines and a Junior Horlicks biscuit for young children. The UK's United Biscuits, meanwhile, brought its McVitie's digestive biscuits to India. PepsiCo is set to soon follow up its 2009 offering of Aliva, a baked-savoury cracker, with a healthy oat-based cookie. And there have also been rumours that Hindustan Unilever is developing plans to re-enter the Indian biscuit market it left in 2005.

India offers volume and value-based growth for these companies. "What was considered as a sick-man's diet earlier is now a favoured quick bite by most people. Because of this, the category has been growing at 10% consistently over the last three to four years," Pratichee Kapoor, associate director at Indian management consultants Technopak, tells just-food.

This is why Kraft opted to launch Oreo through its local arm Cadbury India. "We see tremendous opportunity in the biscuits category as the fastest-growing processed food segment in India," Chandramouli Venkatesan, a Cadbury India director, tells just-food.

Quoting an AC Nielsen study, Venkatesan notes that the category grew by 17% in 2010. "Indian consumers are looking for newer and more innovative products, and are seeking global products to meet their own local taste profiles and preferences. We believe Oreo will meet, and even exceed consumers’ expectations in India," Venkatesan says.

Starting at a price tag as low as Indian Rupees INR 2 (USD0.04 cents), biscuits offer the easiest and cheapest entry point for branded food companies in India. The organised sector in India - the country's commercial food makers - makes up 70% of the total biscuit market and produces 2m tonnes of biscuits annually, according to Mayank Shah, group product manager for Indian biscuit major Parle Products. Still, India's annual per capita biscuit consumption is a mere 2kg, compared to 6.8kg in the UK and 7.2kg in the US, says K P Mohandas, secretary general of New Delhi-based Indian Biscuit Manufacturers Association.

The functional segment (including glucose and digestives) has dominated the Indian market and is remains in steady growth, with sales up 8% per annum. However, by contrast, the smaller indulgence segment, comprising cream, chocolate biscuits and cookies is growing at an annual rate of 25% to 30% thanks to rising disposable incomes and growth in modern retail outlets, according to a study by the ICFAI Business School in Ahmedabad.

Market shares are shifting as a result. Functional biscuits once made up 80% of total biscuit sales but this is now down to 70%, according to Parle's Shah. The move has prompted Parle to venture into the cream and cookie segment in a bid to consolidate its leadership position – it currently controls 42% of India's biscuit market followed by Britannia Industries at 25% and Indian Tobacco Co.'s (ITC) 10%.

Shah tells just-food: "We are looking at opportunities in categories where consumers are evolving. Bourbon is one such category."

Parle, through its Parle-G brand, has been almost synonymous with glucose biscuits in India but has now expanded its portfolio with 20:20 cookies and the Hide & Seek and Hide & Seek Milano chocolate biscuits. Britannia, meanwhile, launched premium cookies Pure Magic in 2007 and Treat –O in 2010, although the latter prompted a lawsuit from Kraft, which claimed they were too similar to Oreo. The case is ongoing and a hearing is scheduled for 28 April.

Meanwhile, Cadbury's Venkatesan is eyeing retail outlets in both urban and semi-urban markets to reach consumers, especially the wealthier ones. "Our priority segments include the 10m households across India that contributes to 70% of cream and biscuit sales."

His enthusiasm is, however, not shared by Nikhil Vora, managing director of research at Indian equities firm IDFC Securities Ltd. He says there is "limited room for global players in the biscuit sector" and notes that GlaxoSmithKline or Unibic have "so far failed to make a mark".

Vora warns: "The global players are making a big strategic blunder. They should enter the glucose segment, take the market share and then move the customer up (to premium and indulgence brands)."

At the Indian Biscuit Manufacturers Association, Mohandas recalls that US food maker Sara Lee vanished from the sector in 2001 after a brief stint.

He says: "This is a high volume, low margin industry. The MNCs are eyeing the high-end market which accounts for less than 30% of biscuits sold in India."

And the Indian consumer does look for value - Parle G created huge sales by offering cream cookies at INR5 (US$0.11) for 80 grams.

"In the absence of product differentiation, the game is about pricing and distribution. The local players are already active here. Even at the peak, I do not see the MNCs capturing more than 10% to 15% of Indian market share," says Vora. 

Manufactured locally, Oreo is offered at affordable price points of INR5 for three biscuits, to INR20 for 14. "The new entrants can give three biscuits for an offer price of five rupees but they will need volumes to sustain at that level," says Shah.

The likes of Kraft, then, have their work cut out for them as they look to take a bite out of India's biscuit market.

Sectors: Bakery, Emerging markets, NPD & innovation, Snacks

Companies: Kraft Foods, Cadbury, United Biscuits, PepsiCo, Unilever, Britannia Industries, ITC, Unibic, Sara Lee

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