India presents significant potential to overseas FMCG firms – and some, like PepsiCo, Cadbury and United Biscuits have built big businesses in the market. However, India has its own domestic titans while there are smaller firms that can compete by offering products that are different to bigger foreign brands. Raghavendra Verma reports from New Delhi.
While India has some significant branded food players in segments such as biscuits, dairy and rice, its fast-growing branded processed food market is so under-developed, there is space for international brands to create sales. However, they are always vulnerable to domestic competitors who have the brand power and local distribution to recoup market share.
Tarun Jain, vice president of the food services and agriculture division of New Delhi-based consulting firm, Technopak, says overall food consumption in India is increasing by 4% annually. However, the growth of processed food sales exceeds 11% – and many segments are still emerging. “In categories like organic farming and health foods, we have not even scratched the surface,” Jain tells just-food. In many cases, he says, India is a “virgin market”, for foreign brands. “You bring something different and you will succeed.”
Foreign companies with large advertising budgets could become market leaders. However, they may not stay at the top for long. While promoting their brands, they might stimulate demand for a whole product segment, which can benefit local companies. “The more the Oreos and Tropicanas of the world advertise, [Indian brands such as] Parle and Dabur sell more,” warns Piruz Khambatta, chairman of the Confederation of Indian Industry’s (CII) national food processing committee.
Foreign competitors can do major Indian food companies a favour – stimulating sales, and leaving them to focus on distribution. Khambatta says: “The challenge is to expand the market, especially in rural areas, and increase per capita consumption,” he says, while also dealing with Indian food regulations and taxation.
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As a result, it is perhaps not surprising Rupinder Singh Sodhi, managing director of Gujarat Cooperative Milk Marketing Federation, which owns the popular Amul milk brand, welcomes foreign launches. “We are certainly not worried about competition, in fact we welcome competition,” he tells just-food. “It is not only good for customers but it also keeps us on our toes in terms of better product packaging and other aspects.”
Amul and other dairy cooperative brands such as Mother Dairy, Verka and Saras, already offer a wide range of products at competitive prices, with respected quality. A senior executive at a New Delhi-based food industry body says Indian dairy players have experimented with product differentiation in a wide variety of segments. And while they have sharpened their performance by competing in each other’s home territories, they also are prepared to co-operate when raw material supplies are short. “Amul holds the number one position in various products nationally but we don’t even try to become number one in every state due to milk supply constraints,” Sodhi says. “In fact, at times we [cooperatives] complement each other by sharing our supply of raw milk.”
The Indian government welcomes such an approach and it is pondering encouraging co-operatives to work with Indian dairy manufacturers, which might make it harder for foreign companies to crack India’s dairy market. Kuldeep Sharma, a member of Confederation of Indian Industry’s national committee on dairy, says the agriculture ministry has proposed co-operatives share milk with private companies, which might offer technology and marketing expertise in return. “The government is very much interested in some kind of inclusive approach but it depends on the co-operatives’ capability to do so and if they can agree on pricing and quality mechanisms,” he says.
Domestic firms in other sectors can compete with overseas companies operating or interested in doing business in India in different ways.
New Delhi-based snacks firm Haldiram’s does business in the unorganised retail channel, which still accounts for the bulk of retail sales in India. Sold as street food or on small sweet shops in the unorganised sector, the popularity of its perishable products remains high in the branded segment. Haldiram’s offers around 1,200 products and is still expanding. “Recently we have launched diet [snack] mixtures to cater the segment which was until now untouched,” says Pradeep Guha, general manager of Haldiram’s. “We have also started offering cookies, chips and wafers.”
These kind of companies can offer hygienic manufacturing, freshness and taste and texture consistency, and mimic traditional Indian recipes, they can be particularly resistant to challenges by foreign manufacturers. “Competitors may come in future but they won’t be able to beat us on prices,” insists Guha. “Because of their overheads, no foreign brands venturing in with this kind of product variety are going to offer cheaper products.”
Furthermore, Guha stresses his company exploits its volumes “to be very economical with our pricing”. Haldiram’s product price range starts from US$1.60 and increases all the way to US$80, he said. Indeed, its products are so popular during festival sessions they have to close their in-house retail outlets, as supplies are pre-booked by bulk corporate customers.
According to Guha, the company’s success has been underpinned by a solid supply chain, which he says, has grown organically as the company started with a single sweet shop in Rajasthan market in 1937 and has over many years grown into a major brand delivering its products in 40 countries.
The CII’s Sharma says such local players can strengthen their position by leveraging strong Indian distribution networks. “The players who have established a strong marketing and distribution network are taking chances by diversifying their product range.” And where their brands have a high local and regional profile, they are better placed to push new lines.
For example, Indian bread manufacturers such as Perfect, Boon and Harvest Gold have expanded their product range by marketing cakes, rusks and other bakery items. Even India’s largest conglomerate Reliance Industries, with interests in petrochemicals and modern retailing has announced that it is venturing into the Indian milk segment, exploiting its non-food branding in the food market.
And then there are national giants such as Britannia Industries, which is an overwhelmingly strong player in the biscuit segment, announcing revenues of INR15.5bn in its first quarter to June 1 this year – up 14% from the same period the previous year.
Another factor strengthening the Indian processed food sector against foreign competitors is the increasing availability of affordable China-made production equipment. “Even small and medium enterprises are considering installing Chinese packaging and processing machinery,” Sharma says.
India presents significant potential to overseas FMCG firms – and some, like PepsiCo, Cadbury and United Biscuits have built big businesses in the market. However, India has its own domestic titans, like Britannia, while there are smaller firms, like Haldiram’s, that try to offer products that are different to bigger foreign brands.
