India’s food processing and retailing sectors are set for significant expansion over the next decade, on the back of both inward and domestic investment, economic growth, rising incomes and the expansion of the middle class, according to a recently published report from just-food. Ben Cooper reports.
Its 1.1bn population, 8% per annum economic growth, an increasingly liberalised trade regime and an informal food supply chain which is ripe for development combine to make India one of the most exciting food markets in food retail and manufacturing, according to a new report from just-food.
The report, Branded foods in India – Forecasts to 2015, describes the potential for food processors and retailers in India as “a veritable commercial gold mine”.
On the back of increasing affluence and the expansion of India’s middle class – 300m and growing – larger commercial food chains are increasing their share of a traditionally fragmented retail environment dominated by smaller local grocery stores, the report states.
In addition to the enhanced access to packaged foods, advertised extensively on TV, the larger-format outlets set themselves apart by offering car parking and purchase by credit card. Retailer own-labels are already featuring prominently, proving more popular in India than in some other prominent developing markets. A survey conducted by ACNielsen in 2006 revealed that 56% of Indian consumers believe supermarket own brands to be a good alternative to other private manufacturer brands, compared to 52% in China and 48% in Taiwan.
The expanding supermarket operators include international players, with the recent entry of Wal-Mart into the market seen as a critical development. The report suggests Wal-Mart’s entry could be a catalyst for further development, “signalling a further switch towards streamlining the country’s fractured food supply chain through proper management and massive investment”.
However, although the entry of foreign retailers into the market could speed up retail development, the report adds the important caveat that there remains strong political resistance to the expansion of foreign groups in the country.
“The liberalisation of the Indian economy to overseas players that has allowed international brands into the country still has a long way to go,” the report states. “The political strength of millions of small traders and the pressure from nationalist and communist parties in the current parliament have forced India’s Congress Party-led government to abandon plans to allow foreign companies to own and operate general retail businesses in India.”
Present rules permit foreign ownership of retail chains selling single-brand products, and then only with prior Government permission. Wal-Mart managed its entry into the market by forming a joint venture with Indian company Bharti Group in November 2006.
Also contributing significantly to the rapid development of India’s retailing sector are some powerful local groups, notably Reliance Industries, which is India’s largest private company with annual revenues of US$28bn. Reliance expects to reach US$22bn in annual retail sales by 2012.
Reliance’s strategy for development gives some insight into the current make-up of the Indian retail market. Notwithstanding the rapid expansion of supermarket chains, Reliance points out that 12m family-run food shops still dominate 96% of India’s food retail sector. The group is exploring ways of partnering with independent retailers. Such partnerships would allow processed food manufacturers to increase their access to market through traditional retail outlets, while also benefiting from the expansion of larger-format stores.
In food production and processing, 100% foreign ownership is generally allowed, but there are some significant exceptions, with a range of products being reserved for production by small-scale companies under the Micro, Small and Medium Enterprises Development Act 2006.
The just-food report, which includes separate chapters on sectors including bread, ready meals, confectionery, processed dairy and processed meat, also points out that foreign food businesses are only allowed to control up to 24% of such smaller businesses.
The list of product areas protected under the legislation includes some notable categories such as rice milling, dal milling, biscuits, bread and pastries, as well as ice cream, pickles and chutneys. However, larger businesses can manufacture reserved items if they undertake to export 50% or more of their production.
However, in spite of some prevailing regulatory restrictions, it is clear that the Indian processed food production and retail market is set for significant growth. According to the Federation of Indian Chambers of Commerce and Industry (FICCI), processed food consumption in India was worth US$100bn in sales in the year to August 2007, and is set to grow at more than 10% annually, underpinned by rising consumer demand, the development of organised distribution and policy initiatives.
Meanwhile, India’s Ministry of Food Processing Industries (MFPI) stated in a recent memorandum that “drastically changing food habits” are the prime reason behind the increased consumption of processed foods. The MFPI added that an expanding population, rising incomes, reduced household food expenses, a growing awareness of healthier products, increasing urbanisation and the growing popularity of convenience foods would ensure “a sustained high growth rate” over the next decade.
For more information or to download this report, go to https://www.just-food.com/store/product.aspx?ID=57406&lk=sup