food industry analysis

7/23/2019 Food industry Analysis

http://slidepdf.com/reader/full/food-industry-analysis 1/290



Overall Bargaining Power of Suppliers - Low

Switching costs - Low

Differentiation of inputs - LowThreat of forward integration - High

Supplier concentration – High

Need for Substitutes - Low



Overall Bargaining Power of Buyers: High

The strength of buying power that firms in thisindustry face from their customers depends on:buyers’ price sensitivity and relativebargaining power Buyer concentration - High

Buyer Volume - Low Switching cost - Low

Brand Loyalty - Moderate

Ability to backward integrate - Low



Overall Threat of Substitutes- High

Price- performance-differentiation - Low

Switching cost – Low



Overall Threat of New Entrants – Medium

Brand Loyalty: Quite Strong

Access to Distribution - ToughProprietary product differentiation – Low

Access to necessary inputs: Tough

Entry and Exit Barriers - Moderate



Overall Industry Degree of Rivalry – High

Market Growth - Moderate

Brand identity – StrongSwitching Cost for Customers - Low

Degree of Differentiation - Low

Scope of Competition – High (Global andlocal)

Strategic Stake - High



The Food and Beverages Industry if highlycompetitive and moderately attractive andprofitable industry

Well established players are relatively in acomfortable position while new and small playerswould find it difficult to make it big

Suppliers and Buyers are in a low and high

bargaining position

Rivalry is high laying emphasis on marketing andadvertising, and to develop brand identity, due tolow product differentiation



Entry and exit barriers are moderate and company whichcan make large investments could try and enter theindustry e.g. ITC

Threat of global competitors and unorganized players

Key is developing SCM and distribution and maintaininggood relations with suppliers and buyers

It is also essential for players in this industry to be attentiveto changing consumer needs

It also becomes necessary to tap newer markets like ruralmarkets



2012 Top 5 threats to profit margins 2011 Top 5 threats to profit margins

Cost of inputs or merchandise Cost of inputs or merchandise

Discounting and other salesincentives

Discounting and other salesincentives

Decreased sales volumes Decreased sales volumes

Regulatory Compliance Administrative and marketing costs

Inventory carrying costs Regulatory Compliance

Source: KPMG Food and Beverage Industry Outlook Survey 2012



Top Growth Barriers in 2012 Top Growth Barriers in 2011

Pricing Pressures Pricing Pressures

Volatile commodity/input prices Volatile commodity/input prices

Lack of Customer Demand Labor Costs

Labor Costs Lack of Customer Demand

Energy Prices Energy Prices

Lack of qualified workforce Regulatory and Legislativepressures

Regulatory and Legislativepressures

Inflation

Inflation Lack of qualified workforce

Source: KPMG Food and Beverage Industry Outlook Survey 2012



Convenience

Premiumization

More-out-of-homeconsumption

Choice/Selection

Freshness

Shopping Experience

Deloitte: Food and beverage 2012



S t r e n g t h s

1. Foreign food companiescontinue to target the Indianmarket

2. India is the world’s second

largest milk producer with adeveloped and high-valuedairy sector

3. India’s abundance ofnatural agricultural resources

makes the market attractive toinvestors

4. India has the second largestpopulation in the world, andrising domestic demand is amajor growth driver.

W e a k

n e s s1. The processed food industry

in India is less developedcompared to other countriesdue to logistical anddistribution problems

2. The country’s agriculturalindustry suffers from a lack ofinvestment and dependencyon erratic climatic conditions

3. Specific state-by-statelegislation governing aspectsof high-value business hindersnationwide business strategies1



O p

p o r t u n i t i e s1. The government is actively

seeking investment in the foodprocessing and agribusinessindustries

2. Rising disposable incomesand increasing urbanizationmean higher-value processedfoods should experience stronggrowth rates

3. The immense size of India’spopulation and landmassensure that market maturity is adistant prospect

4. Premiumization

T h

r e a t s1. Logistical problems,

underdeveloped servicenetworks and poorinfrastructure hinderdevelopment in fresh foodindustries, such as dairy

2. The division between theurban rich and the rural poor isas great as ever, meaningfood manufacturers do nothave access to the entire

population

3. Elevated commodity costsare a threat to food processors



The Ministry of Food Processing, Government ofIndia has defined the following segments within theFood Processing industry:

Dairy, fruits and vegetable processingGrain processing

Meat and poultry processing

Fisheries

Consumer foods including packaged foods,beverages and packaged drinking water



The Indian food processing at $135 billion and is estimated togrow at a CAGR of 10% to reach $200 billion by 2015

The industry has huge growth potential: Of the country total foodand agricultural produce only 2% is processed

The Industry contributed to 7% of the country’s GDP and itemployees 13 million people directly

Value addition of food products is expected to grow from 8% to35% by the end of 2025

The fruit and vegetable processing which is at a 2% growth rateis expected to reach 25% growth rate by 2025

The highest growth is in the dairy processing sector where 37% oftotal produce is processed



Processed foods are primarily derived from agricultural commodities,which often incur multiple taxes at various stages. This multiple taxationhas a cascading effect on prices and a barrier to the free flow ofmaterials from the farm to the factory and ultimately to the consumers

Diet food and nutraceuticals are the latest fad are available for everypatient today, be it hypertension, diabetes, obesity, or even weightreduction

Motivated by a desire for maximum indulgence coupled with a wish forcalorie control and health benefits, consumers are increasingly choosing

sugar-free and sugar-reduced products

Packaging of food products has become important in order to ensuresafety and hygiene and to eliminate the possibility of adulteration.However, packaging industry is yet to achieve international standards inthe country



India is one of the largest countries in the world, with a growing

population of 1.2 billion people

India’s GDP was US$1,843 billion in 2011 and is forecast to rise toUS$2,013 billion in 2012

GDP is expected to continue growing at rates around 7 – 8 percentper annum for the next few years

There has been a discernible increase in purchasing power in manyparts of the country and rising affluence in many urban pockets

However, income distribution in India remains uneven between awealthy urban population and a low income rural population



Almost a quarter of the population is living on less than US$1 per

day, even though GDP per capita is US$3,787

The income split essentially means that India has two separateconsumer segments, which are further split by strong regionaldifferences

India is one of the world’s largest food producers and has a largeagriculture industry and combined with a cultural preference forfresh food, means that India supplies the majority of its own food forconsumption

India is a growing market for processed food imports, which arebecoming more popular with the younger population, especially inurban areas

Consumption of food and beverages was estimated at US$366.8billion in 2011



Primary food processing (packaged fruit and vegetables, milk,milled flour and rice, tea, spices, etc.) constitutes around 60% ofprocessed foods

It has a highly fragmented structure that includes thousands of rice-mills and hullers, flour mills, pulse mills and oil-seed mills, severalthousands of bakeries, traditional food units and fruits, vegetableand spice processing units in the unorganized sector

In comparison, the organized sector is relatively small, with around516 flour mills, 568 fish processing units, 5’293 fruit and vegetable

processing units, 171 meat processing units and numerous dairyprocessing units at state and district levels

M t d



Segment

Dairy

SectorFruit and

Vegetables

Meat and

Poultry

ProcessingFisheries

Packaged

foods Beverages

Staple

foods

Growthrate of the

market

15% 10% 10% 20% 8% 27% 85%

Keysegments

Valueadded

milkproducts

like

butter,Cheese,ghee ,

condensed milk

andinfantfood

Raw fruitand

vegetables,fruit pulps,cannedfruits and

pickles

Cattle,buffalo andpoultry

Marinefisheries,frozen

productsand

minced fishproducts

Noodles/vermicelli

Fruit-based

drinks andcarbonated

drinks

Sugar,wheat flourand salt

Extent ofProcessing

37% 2% 1% 12% - - -

Share oforganized

sector

15% 48% 5% - 80% 77% 50%



The overall packaged food industry reached US$25.4 billion in 2011and is forecast to grow to US$38.5 billion by 2016

The highest value segments of packaged foods in 2011 were to be‘dairy’ (at US$9.1 billion), followed by ‘bakery’ (at US$4.9 billion), and

‘oils and fats’ (at US$4.1 billion)

The West India region has the highest value sales of packaged foodsin India

A large number of brands from domestic and multinational playersare present in the region and many international brands areimported



Consumer awareness of packaged foods is also high in North India,which is one the most affluent regions in the country with areas suchas New Delhi, NCR, Chandigarh, Jaipur and Lucknow

This has resulted in packaged foods seeing good growth in the

region and this trend is expected to continue

East and Northeast India are the smallest markets in India forpackaged food, due to the underdeveloped nature of these areasand continued political instability



ITC Limited

Parle Products Pvt. Ltd.

Agro Tech Foods

Amul Perfetti India Ltd.

Cadbury India Ltd.

PepsiCo India Holdings

Nestle India Pvt. Ltd. Britannia Industries Ltd.

Hindustan LeverLimited

Milkfood

MTR Foods Limited

Godrej IndustriesLimited

Gits Food Products Pvt.Ltd.

Dabur India Ltd.

Conagra Foods

Nissin Foods

Wal-mart

Venky's



India today stands first in the world in terms of milk production

The output is expected to be about 108 million tonnes(estimate for 2007), growing at a compounded annual

growth rate of 4%

Consumption of milk has registered a growth of nearly 8.4%(in urban areas) and is currently valued at US$ 16 billion

Within India, the dairy sector also ranks second in terms ofprocessed foods with 37% of the produce being processed



The organized sector processes an estimated 15% of the total milkoutput in India. There are 676 dairy plants registered withGovernment of India, which come under the organized sector

According to estimates of “Dairy India 2007”, the current size of the

Indian dairy sector is US$ 62.67 billion and has been growing at arate of 5% a year. Both production and consumption of milk and itsderivatives are traditionally high in the country

The dairy exports in 2007-08 rose to US$ 210.50 million against US$

113.57 million in the corresponding period, in the last fiscal, whereasthe domestic dairy sector is slated to cross US$ 108 billion in revenuesby 2011



Milk and milk products contribute to a significant 17% of thecountry’s total expenditure on food

Traditional dairy products account for about 50% of the totalmilk produced

The market for dairy products is expected to grow at 15-20%over the next three years

Ghee (or clarified butter) is the most widely marketed andbranded product with a nation-wide penetration of 24.1%

It is estimated to be growing at a rate of 8% per annum



The dairy whitener market comprises of sweetened milkpowders, condensed milk and creamers. Its market size isestimated at US$ 450 million for 2005-06

The cheese market is estimated at US$ 2.49 million for 2005-06(54’000 tonnes in volume terms), growing at a rate of nearly10% per annum

The organized cheese market is dominated by processedcheese which accounts for 74% market share

The ice-cream market in India is estimated at US$ 226 millionin 2005-06, with the organised market at US$ 158.2 billion



Probiotic dairy products - containing live organisms buildingimmunity and helping in digestion - are an emergingcategory in the Indian food market

Along with domestic dairy majors like, Amul and MotherDairy, global players like Nestle have made significantinvestments to capitalize the potential of this particular nichesegment

The latest entrant is Yakult Danone with its investment worthUS$ 28.3 million and an additional US$ 20.8 million on thecards for the next 2-3 years



According to the latest report on 'Indian Functional Foodsand Beverage Markets' by Frost & Sullivan, the market ofneutraceuticals and probiotics earned revenues of over US$185 million in 2007 and is projected to touch an estimated US$

1.16 billion in 2012

Although the segment is currently in its nascent stage, it ispoised for an upswing riding piggy-back on a healthydomestic economy and awareness of health products, thus

giving a boost to this segment.



India produces the widest range of fruits and vegetables in theworld. It is the second largest vegetable and third largest fruitproducer accounting for 8.4% of the world’s food andvegetable production

The share of organised sector in fruit processing is estimated tobe nearly 48%

Fruit production in India registered a growth of 3.9% during theperiod 2000-05 whereas the fruit processing sector grew severaltimes faster at 20% over the same period

The total area under fruit cultivation is estimated at 4.18 millionhectares

The total area under vegetable cultivation is estimated at 7.59million hectares



However, less than 2% of the total vegetables produced in thecountry are commercially processed, as compared to nearly 70% inBrazil and 65% in USA

While products like juices and fruit concentrates are largelymanufactured by the organized sector, pickles, sauces belong tounorganized sector

About 20% of processed fruits and vegetables are exported. Majorproducts exported include fruit pulps, pickles and chutneys, cannedfoods, concentrated pulps and juices and vegetables

Fruit exports have registered a growth of 16% in volume and 25% invalue terms in 2005-06. Mango and mango based products aloneconstitute 50% of these exports



India produces over 200 million tonnes of grains every year

India’s production covers all major grains are rice, wheat,maize, barley and millets like jowar, bajra and ragi

It ranks third in the production of grains in the world

With a share of 40%, grain processing is the biggestcomponent of food sector

Primary processing constitutes 96% with the remainingaccounted for by the secondary and tertiary sectors



Total rice milling capacity in the country is around 190 milliontonnes

There are about 516 large flour mills in the country, as well asabout 10’000 pulse mills

Soya food segment is also growing due to increased healthconsciousness and abundant production of quality soya

bean (3.72 million tons/year) in the country



Total meat production is around 5 million tonnes annually

Most of the production largely belongs to unorganizedsector. Some of the organised players are Venky’s andGodrej’s Real Chicken

Only 1-2% of the meat produce is converted to value addedproducts

Growth rate of egg and broiler production is around 16% and20% respectively

Poultry processing is still at a nascent stage in India



The fisheries sector contributes to 1.4% of the country’s GDP

Processing of fish and canned fish is almost entirely for export market

The fish and seafood market has continued to grow strongly asmiddle-class Indian consumers’ purchasing power continues togrow. However, this is starting from a very low base.

Molluscs and cephalopods are the fastest-growing categories of fishand seafood

India’s National Fisheries Development Board is spending Rs6.2 billion(US$123 million) to expand the use of intensive aquaculture in India,providing money to help farmers adopt technologies for sustainablefish farming and fish seed production



Consumer food industry which is a subset of thefood industry consists of: Packaged Food

Aerated Soft Drinks Packaged Drinking Water

Alcoholic Beverages

The segment consists of bakery products, ready-to-eat snacks, chips, namkeens



The beverages market primarily consists of non-alcoholic beverageswhich can be broadly classified into carbonated drinks, non-carbonated drinks and hot beverages

According to industry experts, the market for carbonated drinks inIndia is worth US$ 1.8 billion while the juice and juice-based drinksmarket accounts for US$ 300.67 million, of the approximately US$2.38 billion packaged beverages category. Growing at a rate of25% per cent

The fruit-drinks category is one of the fastest growing in thebeverages market

The US$ 1.80 billion carbonated drinks category is expected to facethe heat of the rising competition from



Categories falling under the health umbrella, i.e. juice and juice-based drinks, energy and sports drinks, maltedbeverages, probiotic drinks and bottled water. They areconsidered a socially acceptable alternative to alcoholic

beverages

At US$ 300.67 million, the juice and juice drink category isamong the fastest growing segments

While fruit drinks as a category is growing at 18% - 20%,carbonated soft drinks are growing at 6% - 8% driven by thepositive changes in India’s consumer profile.



Two of the world’s biggest global brands are wellestablished in this segment

Soft drinks constitute the third largest packagedfood segments after tea and biscuits

Penetration levels of aerated soft drinks if quite low

compared to other developing and developedmarkets



Trends such as shortage of drinking water, changesin consumer lifestyle has fueled growth in thissegment

Almost all the big players in the F&B players aretrying to gain foothold in this segment



Hot beverages include health drinks such as white beverages(Horlicks, Bournvita, etc) and brown beverages such astea/coffee as well as branded drinks (Boost)

The total size of this market is estimated at US$ 333 million byvalue and 85’000 tonnes by volume. White beveragesaccount for 65% of the market and brown beveragesconstitute the remaining 35%

India is the largest producer of tea in the world accountingfor 28% of the total global production, at 857 million kg.



Tea production in India has been growing at 1.2% per annumand India is the fourth largest exporter of tea in the world withestimated exports of US$ 5 million in 2002-03

India is also the fifth largest producer of coffee accountingfor 4% of the total production in the World

Nearly 75% of India’s production is exported and coffeeexports stood at US$ 5.2 million in 2005-06



India is the third largest for alcoholic beverages in the world

The demand for spirits and beer is estd. Around 373 millioncases per annum

There are 12 joint venture companies producing grain basedbeverages with a combined capacity of 33.9 million liters perannum

The overall wine forecasted to grow to INR23,140.2 million by2015



The highest value segments are estimated to be ‘still lightgrape wine’ (at INR7,884.7 billion), followed by ‘sparkling’ (atINR1,846.8 billion), and ‘fortified wines’ (at INR1,213.2 million)

And, while Bangalore, Chandigarh, Mumbai are reportinghigh growth in consumption, Nasik, the capital of Indianwines, registered a 100% rise

Out of the total consumption of grape wine in India, around80% wine consumption is from the major cities



Bread is slowly coming to be a staple product consumedby people of all economic classes in India

Total bread production in the country in 2004-05 was

estimated at 2.7 million tons, growing at 7.5%

About 55% of bread production comes from the organisedsector

India is the second largest producer of wheat in the world

with an output of more than 70 million tonnes

Branded ‘atta’ (wheat flour) is an important item in thissegment with an estimated market of US$ 195 million



The Indian market holds enormous growth potential for snackfood, which is estimated to be a market worth US$ 3 billion

The organised sector of the snack food market is growing at 15%- 20% a year while the growth rate of the US$ 1.56 billion

unorganized sector is 7% - 8%

Consumption level of commercial savory snacks is 10 timeshigher than that in the rural markets

Around 1’000 snack items and 300 types of savories are sold in

India

The segment is largely dominated by potato chips and potato-based products with over 85% share of the salty snack market.



The global retail market for organic food has grown to US$ 100 billionfrom US$ 35 billion over the last three years

The exports of organic food from India have grown to US$ 65 million

over the past one year from US$ 21.6 million two years ago

Some players, like Navdanya, organically cultivates crops like jowar,bajra, millet, in its 21 acre farm in Dehradun and sells it from its retailoutlets in Delhi and Mumbai

The number of such growers has been rising in the Dehradun valleyand Bundelkhand. APEDA in association with the Ministry ofAgriculture has taken an initiative to convert 20’000 farmers and atotal area of 75’000 hectares to organic farming over the next threeyears



Following suit, the Darjeeling Tea Association (DTA) has mountedefforts to increase the production of organic tea

According to the industry experts, about 37% of the total crop

grown on the slopes of the eastern Himalayas, at present, is organictea, as per certifications given by European and Japaneseagencies. DTA is aiming to organically produce the majority of thechampagne of teas by 2010



Overall food and beverage consumption is expected togrow at rates between 6 – 11 percent for the next few years

The products and sectors that are expected to have the

highest potential for growth are:› Ready to eat meals, canned foods and snacks are forecast to

be in higher demand

› There is high growth for processed dairy and milk products.Additionally, the dairy processing industry in India is growing and

demanding milk and dairy ingredients› Cheese, butter, whey, yoghurt and ice cream are some of the

major dairy products that are imported with cheese being themost popular



› In India, tea is one of the only beverage products that has amature market. Other beverages such as coffee, carbonateddrinks and functional drinks all are experiencing high growth.Coffee consumption is expected to grow 20 – 30 percent per yearfor the next few years

› Demand for wine is also growing, but the market is still capturedmostly by domestic suppliers due to high tariffs on importedwines. Still red wine sales are forecast to grow by 17.6 percentcompound annual growth rate (CAGR) between 2010 and 2015,fortified wine by 15.9 percent and still white wine by 15.2 percent

› As incomes rise, the consumption of fish is expected to increase17 percent by 2015



What are the different segments?

Consumer Food Sector



Consumer Food Sector

Packaged Food

Confectionary

Canned Food

Bakery

Processed food

Dairy

Noodles & Pastas

Sweet and SavorySnacks

Oils and fats

Sauces and Spreads

Soups & Ready

Meals



Also referred to as convenience food, packaged food is dividedinto numerous segments

Some of the leading players in packaged food in India are

Hindustan Unilever, Gujarat Co-operative Milk Marketing Federation,Nestlé India Ltd, Frito-Lay India, GlaxoSmithKline ConsumerHealthcare Ltd, Britannia Industries Ltd, MTR Foods and KarnatakaCooperative Milk Producers Federation Ltd.

With the range of packaged food products available in India likely

to become wider and awareness of such products expected toincrease over the forecast period, it is expected that packagedfood will continue to witness healthy growth in the future.

8 00 000 0

Market Size by Retail Value



0.0

2,00,000.0

4,00,000.0

6,00,000.0

8,00,000.0

10,00,000.0

12,00,000.0

14,00,000.0

16,00,000.0

18,00,000.0

2007 2008 2009 2010 2011 2012

Packaged Food Canned/Preserved Food Confectionery Dairy



Confectionary



Confectionary retail value sales in India rose by 7% in 2012

It includes the following –

› Chocolate Confectionary Its sales grew by 13% in 2010

Manufacturers are

increasingly targeting both

upper and lower income

consumers

› Gum

Sales grew by 4% in 2010 Can be attributed to its

rising consumption in

smaller towns & cities

› Sugar Confectionary Sales grew by 1% in 2010

0.0

20,000.0

40,000.0

60,000.0

80,000.0

1,00,000.0

1,20,000.0

1,40,000.0

2007 2008 2009 2010 2011 2012

Market size

Confectionery



Stronger economic growth has boosted consumer confidence and

led to increased disposable incomes

This has benefited the performance of key indulgence categorieslike chocolate confectionery and functional gum, which commandhigher unit prices

Giving chocolate as a gift for festive occasions has returned

Medicated confectionary is also exhibiting robust performance andgrew by 2.4%in 2010

Functional gum remained the best performing gum category invalue terms in 2010, growing by around17%

This can be attributed to active efforts by the manufacturers to

educate consumers of its dental benefits



Canned/Preserved Food



Canned/preserved food is expected to increase in current valueby 17% in 2012, rising to INR4.5 billion

Canned/preserved fruit is set to recordthe highest growth in 2012,rising in current value by 17%

Canned/preserved fruit andcanned/preservedvegetables remain thelargest categories in

canned/preserved food

Canned/preserved food isset to increase in constantvalue at a CAGR of 8% over the forecast period

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

5,000.0

2007 2008 2009 2010 2011 2012





Consumer awareness of packaged food categories such asfrozen processed food and canned/preserved food continuedto rise in India

This is occurring mainly due to the initiatives being undertaken bycompanies such as McCain Foods India Pvt. Ltd with the aim ofeducating Indian consumers about the benefits of these

packaged food products

Canned/preserved fruit and canned/preserved vegetableswere the first categories to be introduced & are set to be thefastest growing categories in canned/preserved food

However the value growth is expected to be lower than that offrozen processed food

The consumption of canned/preserved food remains limited tourban areas and the distribution of these products isconcentrated in modern grocery retail channels



Bakery



It includes the following – Baked Goods

› It is expected to post a CAGR of 4% in constant value terms

› Unpackaged/artisanal pastries is likely to register the fastest growth of 13%

Biscuits› Its’ sales are expected to post

a CAGR of 9%

› Cookies is expected to register

› the strongest value growth

Breakfast Cereals› It is projected to grow by a

CAGR of 16%

› Hot cereals is likely to lead

breakfast cereals with value

sales rising 33% in 20110.0

50,000.0

1,00,000.0

1,50,000.0

2,00,000.0

2,50,000.0

3,00,000.0

2007 2008 2009 2010 2011 2012

Market Size

Bakery

Market Size



0.0

20,000.0

40,000.0

60,000.0

80,000.0

1,00,000.0

1,20,000.0

1,40,000.0

1,60,000.0

1,80,000.0

2007 2008 2009 2010 2011 2012

Baked Goods

Biscuits

Breakfast Cereals

Market Size



Demand for bread is relatively stable and consumers are shiftingtowards healthier formats such as brown or enriched bread

Bread, cakes and pastries have grown, aided by franchiseexpansion of the leading chains of both artisanal and packagedplayers

Cakes are increasingly being used as gifts instead of traditionalsweets

Artisanal baked goods players were the leaders with a 57% value

share in 2010

With chained supermarkets/hypermarkets projected to expandfurther to reach tier-two and tier-three cities, this will give rise to anincreasing number of in-store bakeries



Consumers consider biscuits as a cheaper indulgence andnourishing products and an alternative to higher-priced cakes,pastries, and sweets

Diverse flavors and new products have made biscuits a moreattractive snack for young consumers

Innovations such as savory biscuits and crackers have contributedmajorly to the growth

With the rise in lifestyle related diseases including diabetes,

hypertension and obesity, health has become a key factor

Leading manufacturers have started offering biscuits positioned onthe health and wellness platform including sugar free, diabetic-friendly products, oat or wholegrain based



An increasing number of manufacturers have fortified breakfastcereals with vitamins, added health food ingredients and promotedtheir health benefits through educational and social programs

Growing awareness of the benefits of oats for heart health drivesdemand for breakfast cereals

Mueslis was the second fastest growing breakfast cereal category.

Niche products have emerged in the market, such as bran flakes,oatmeal squares and low fat granola, but their sales will be limited

to urban areas because they are currently only available in largesupermarkets/ hypermarkets



Processed Food



It includes the following – Frozen Processed Food

› It is expected to increase in constant value at a CAGR of 17%

› Frozen processed red meat is set to be the fastest growing frozenprocessed food category in 2012, increasing in value by 24%

Chilled Processed Food› Sales of chilled processed food

are set to remain negligible

Dried Processed Food› It is expected to increase in

constant value at a CAGR of16%

› Instant noodles with a value

growth of 30% followed by Rice

with a value growth of 24%

posted the highest value growth0.0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

80,000.0

90,000.0

1,00,000.0

2007 2008 2009 2010 2011 2012

Market Size

Processed Food



The rising number of supermarkets and hypermarkets with freezerdisplay cabinets contributes to the strong growth registered in frozenprocessed food during 2012

Mother Dairy Fruit & Vegetable Ltd, Al Kabeer Exports Pvt. Ltd andVenky’s India Ltd are the three leading players

The changing perception of frozen processed food is based on risingawareness of its benefits in comparison with fresh food, and this inturn is driving its growth

Frozen processed vegetables is set to account for 44% of total frozenprocessed food retail value sales with Green Peas being thedominant format

The retail distribution of frozen processed red meat and frozenprocessed poultry is set to undergo quite radical changes



The rising awareness of frozen processed food and canned food inIndia has the potential to help build awareness of chilled processedfood as well

A number of players introduced premium products in rice in Indiaduring 2011 and 2012 as many consumers became more willing to

spend money on high quality rice

Spurred on by a variety of factors such as better shelf positioning,visual merchandising and in-store promotions, rice is expected toincrease in value by 24%

Organic basmati rice has a good future in India



Dairy



It includes the following – Ice Creams

› It is expected to increase by a CAGR of 12%

Yogurt & Sour Milk Products› It is expected to increase by CAGR of 20%

Cheese› It is expected to post a CAGR

of 14%

Drinking Milk Products› Its’ sales are expected to post

a CAGR of 7%

Other Dairy Products› It is expected to increase by a

› CAGR of 3%

0.0

1,00,000.0

2,00,000.0

3,00,000.0

4,00,000.0

5,00,000.0

6,00,000.0

2007 2008 2009 2010 2011 2012

Market Size



Current value sales of single portion dairy ice cream are expectedto see the fastest growth

Historically, ice cream consumption in India was limited to thesummer months but gradually it has become popular as a dessertoption

The healthy growth being registered by ice cream fast food chains isexpected to result in increased demand for retail forms

Flavored and fruited yoghurt are receiving increased attention

Pro/pre biotic drinking yoghurt sales are also increasing rapidly

Packaged and branded soft cheese (primarily paneer in India)overtook processed cheese for the first time in terms of value sales in

2010



The popularity of foreign cuisine such as pasta, pizza, and burgers, islikely to drive the retail volume growth of cheese in India

Spreadable processed cheese is expected to see the highestconstant value CAGR, as it will gradually serve as a viablealternative to spreads in India

Spicy variants of processed cheese & packaged paneer willdominate the push towards product diversification

Fresh/pasteurized milk is expected to comprise 83% of value sales of

drinking milk products

Ambient flavored milk drinks is expected to be the dominant formatin India, as chilled milk drinks face operational constraints in thecountry



Value-added products such as fermented milk and fruit-baseddairy drinks are likely to experience many new product launches

Dairy only flavored milk drinks and soy milk are forecast to see thefastest growth

Milk and milk powder, which are both essential components of otherdairy products in India, registered exceptional increases in bothwholesale and retail prices in 2011

New categories such as cream and dairy-based desserts are

expected to emerge as rapid growth categories



Noodles & Pastas



It includes the following – Noodles


› Pouch instant noodles will experience the fastest growth

Pastas› It is expected to increase by

CAGR of 18%

› Strong growth in the category

due to the rising popularity of

Italian cuisine

0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

2007 2008 2009 2010 2011 2012

Noodles & Pasta

Noodles & Pasta



Due to the heavy advertising by manufacturers, the awareness ofthis product has improved drastically and has thus evolved tobecome a regular staple in all households

Manufacturers are experimenting with different & exotic flavours tooffer a wide choice of product offerings

Noodles was dominated by Maggi five years ago, but with brandslike Foodles, Yippie! and Knorr entering the space through brandextensions and deep advertising pockets coupled with strongdistribution networks, the competition is intensifying

Soup, oat and curry noodles have also been launched

Many private label products have entered pasta and are expectedto do well as they can offer competitive pricing



Sweet & Savory Snacks



It is expected to increase at a CAGR of 13%

Sweet and savory snacks witnessed many product innovations underthe health and wellness banner

Nuts is expected to grow by 13%

Extruded snacks is expected to

show robust growth which will

be mainly attributable to high

sales from snacks at lower pricepoints priced between Rs5-10

The biggest threat to this category

are growing health concerns

0.0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

80,000.0

90,000.0

1,00,000.0

2007 2008 2009 2010 2011 2012

Market Size

Sweet and Savoury Snacks



Oils & Fats



It is expected to increase by a CAGR of 4%

Vegetable and seed oil continues to dominate oils and fats

Although activity on the health

and wellness front is on the riseprice is still a key concern

Olive oil is expected to see the

fastest growth

New packaging sizes in margarine

& ghee are being introduced to

Drive volume sales0.0

50,000.0

1,00,000.0

1,50,000.0

2,00,000.0

2,50,000.0

3,00,000.0

3,50,000.0

4,00,000.0

2007 2008 2009 2010 2011 2012

Market Size

Oils and Fats



Sauces & Spreads



It includes the following – Sauces, Dressings & Condiments


› It will witness 19% value growth

Spreads› It is expected to increase by

CAGR of 7%

› It will witness value growth of 12%

› Honey is likely to lead in spreads

with 13% growth in current value

sales

0.0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

2007 2008 2009 2010 2011 2012

Market Size

Sauces & Spreads



International cuisines drive sales of sauces, dressings andcondiments

Wet/cooking sauces are still at a nascent stage in India

Another factor which has led to robust growth in this category is the

increasing prices of vegetables, like onion, garlic and ginger

The most popular table sauce is mayonnaise which showed thehighest value growth in table sauces

Ketchup is the most notable category in table sauces which willgrow by 16%

Companies have come up with innovative squeeze bottles whichare far more convenient to use than glass bottles



MTR Foods Ltd which forayed into the snacks market is eyeingacquisitions in the jams and ketchup categories

Field Fresh Foods Pvt. Ltd has plans to introduce pasta sauce to theIndian market

Honey, jams and preserves made up the bulk of spreads sales in2011

There is fast growing interest in chocolate spreads, such as Nutella innut-based spreads, or Skippy in peanut butter

The lack of growth in the bread segment, coupled with competitionfrom dairy spreads, may affect sales of jam and preserves



Soups & Ready Meals



It includes the following – Soup


› Dehydrated soup to exhibit 21% value growth

Ready Meals› It is expected to increase by

CAGR of 9%

› Canned/preserved ready meals

and frozen ready meals are set to

be the most important categories

in ready meals

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

2007 2008 2009 2010 2011 2012

Market Size

Soups & Ready Meals



Canned/preserved soup, which is more popular than dehydrated

soup worldwide, is expected to show a decline in value sales

Manufacturers are launching soups in varieties of exotic flavors toappeal to consumers’ taste buds

Potential threats include competition from other snack offerings,such as biscuits, snack bars and cereals, which are expected tocompete with soup on the convenience and health front

Another potential threat for this category is the lack of awareness

about such products in rural areas

Both Indian companies and international players are expected tomake attempts to launch new products in ready meals which targetdemand for local flavours and traditional dishes



Packaged Food Industry



Demographical Changes› India has a large young population; with a median age of 25.5 as of 2012

› They have sufficient disposable income, are individualistic and want tostand out in whatever they do.

› As a resulting they are driving demand for & rapidly embracing newbrands

› Children are aware & have become more vocal in making theirpreferences known to parents

› An increasing number of young adults have moved to cities for work orstudy & also make daily decisions regarding what food products to buy

Socio Economic Drivers: Increased Income /Affordability

› The Indian middle class is increasing in size and purchasing power andwill definitely spend more on this category of consumer expendables



Expansion in the Food Services Sector › The proliferation of foodservice outlets and consumer’s interest in dining

out will present growth opportunities for packaged food manufacturers incoming years

› The consumers palate is also expanding and they are increasinglyexperimenting and trying out varied cuisines and flavors

› This has generated interest in packaged food products with internationalflavors

› Products that will benefit from these trends include cheese, sauces anddressings, frozen processed food, noodles, pasta, oil and fats

› Olive oil is also expected to perform well as consumers become morefamiliar with its use in preparation of Western dishes, as well as its health

benefits› Similarly, noodles and soup will also gain greater acceptance among

consumers



Focus on Health Benefits› In larger cities consumers are switching to healthier options of packaged

food, such as whole meal bread and low-sugar sweets

› Healthy products positioned for the mass segment are expected toperform more strongly than products targeting the niche high-incomesegment

› With increases in disposable incomes consumers may be more willing topay for healthier products which are often priced higher than similarproducts without health positioning

› Manufacturers continue to push health-oriented products, as theyrecognize there is huge potential for health and wellness to develop inIndia

› Manufacturers may also look at new fortified products aimed at ruralconsumers looking for basic nutritional needs such as iron, calcium,protein, etc.



Urbanization & Shifting Lifestyles› The increase in urbanisation has led to a demand for premium products

in this segment

› Shifting lifestyles of Indian people & the ongoing increase in the size ofIndia’s middle-class population is also driving demand

› Due to the paucity of time, consumers are looking at options where themeal can be prepared fast and is tasty as well

› Coupled with these, factors like an increasing number of working couplesand shortage of household help is also driving the sales

› Consumers’ dietary mix is changing with increased focus on international

food and reduced consumption of traditional food



Marketing Efforts› Leading multinational manufacturers have started using social media to

engage young consumers

› Examples of such products include sweet and savory snacks, sugarconfectionery, ice cream and snack bars etc.

› The increased reach of media channels such as television and Internet in

both urban and rural India is likely to help the growth of consumer goods’value sales over the forecast period

› Marketing efforts for brands such as Quaker and Kellogg’s heightenedawareness for the entire cereals category, while increased instances ofbreakfast buffets at restaurants led to growth in demand for hot cerealsas well.

Another factor which has led to robust growth is theincreasing prices of fresh food & vegetables, like onion, garlicand ginger



Indian consumers, particularly the youngerpopulation, are becoming more accepting ofdifferent food and drink products

There is increased demand for product variety, aswell as products from different countries

The number of imported food products isincreasing in retail stores. This trend is evident notonly in organised retail, but also in the small family-owned stores which dominate themarket.



Glocalisation is the localisation of globalised products orservices and has caused international food products to beadapted to suit Indian consumers

For example, McDonald’s in India provide vegetarian ratherthan beef burgers and pizza chains serve pizzas with Indiantoppings such as curry

This has resulted in greater acceptance and increased

demand for international food and beverage products inIndia



Demand for specialty and high valuefoods such as chocolates, almonds andother dried nuts, cakes and pastries,

imported fruits, fruit juices, and Indiansweets peaks during the festive season,especially at Deepawli (Diwali) - the

festival of lights



Changes in Retail Format› Growth in modern chained grocery retailing

› Supermarkets/hypermarkets have emerged as a key retail channel forpackaged food, as their share in overall retail sales increased by threepercentage points

› The expansion of chained grocery stores and increase in productofferings, such as more imported brands on retailers’ shelves has

contributed to the growth› There are also a growing number of specialist retailers in urban areas,

especially in shopping centers, which attract high-end consumers

› Their specialization with cold chains and associated product categoriesmakes these outlets a favorite among manufacturers looking to cater toselect urban consumers

Other factors expected to positively influence growth of driedprocessed food include the lower levels of regulationexpected in dried processed food and the increasingcultivation of rice



Efficient Back End infrastructure› The growth of cold chain infrastructure is likely to heighten the use of

frozen processed food, chilled processed food and non-traditional dairyproducts in India

› International manufacturers and domestic manufacturers with strongfinancial backing are expected to begin providing freezer displaycabinets to Indian grocery retailers in the near future in order toencourage them to stock their goods

FDI in retail› With government allowing 51% FDI in multi brand retail and 100% FDI in

single brand retail, International giants such as Wal-Mart & Carrefour are

coming in› With the arrival of these giants, there is immense scope of growth for new

segments in packaged food

› This also signals the arrival of more international giants and increasedversatility of products



Superior processing technology to compete with otherplayers in the market› The players in the market need to possess the latest technology

in order to compete and face the price sensitive audience

Brand building and marketing to gain market share;increasing penetration in domestic market; competitivepricing› With a mixed set of organised and unorganised players in the

market, there is a strong need for brand building and marketingto generate the required reach

› The market is majorly price sensitive further adding to therequirement of competitive pricing

› There is a constant effort to penetrate into the remotest of theareas to increase the presence



M&As, New entrants, Exits



During September 2011, US-based McCormick & Co Inccompleted the formation of a joint venture with KohinoorFoods Ltd for the marketing and distribution of basmati riceand various other packaged food products in India

McCormick invested a total of INR5.2 billion (US$113 million) inthis transaction, which involves McCormick taking an 85%stake in the new joint venture

Total revenues achieved by the company’s new joint ventureare expected to be in the region of US$85 million during its firstyear of operation.



Ben and Jerry’s Homemade Inc.plans to enter India

The unit of the Anglo-Dutchconsumer goods maker UnileverPlc. - it took over the UScompany in 2000 - is planning toenter the Indian market withinsix months



Danone entered India to seek potential growth for itsproducts.

The 15 years of learning Indian market allowed Danone to

change from its diversification strategy to being focused in itsBusiness line.

Danone BOP (Base Of Pyramid) India is charged withdeveloping and marketing products to lower income

consumers in smaller towns such as Gurgaon, Faridabad,Panipat, Sonepat and Ambala, before gradually moving toother parts of the country.



Britannia Industries acquires the entire stake of Fonterra, thecompany’s joint venture partner since 2002 in Britannia NewZealand Foods Pvt. Ltd, which is engaged in the dairybusiness.

Britannia Industries entered into an agreement with Fonterra

Brands (Mauritius Holding) Ltd, Mauritius, for acquiring thelatter’s 49 per cent equity and preference shareholding inBritannia New Zealand Foods Pvt. Ltd (BNZF).



India continued to experience inflation in 2011

In particular, food and oil prices surged in the first half of the year,although the pace of inflation slowed down in the later months

Many packaged food manufacturers reported that rising input costsput pressure on profit margins, and they either had to raise prices ormanage costs more closely

Players in the mass segment also launched low-price variants of

premium products to fatten profit margins

Inflation also reduced consumer spending power. In particular,consumers in the low-income segment were forced to reducespending on non-essential items.



Some manufacturers were reluctant to increaseprice too much for fear of losing customers tocompetitors

These manufacturers looked into more stringentcost controls

Examples included ITC Ltd’s efforts to improveproduction efficiency and Hindustan Unilever Ltd’sefforts to reduce packaging costs.



Prices of certain food, such as milk and edible oils, remain apotential problem area for inflation

Uncertainties in the global economy are limiting the outlook forexport

Packaged food value sales in North India are projected to see aconstant value CAGR of close to 9% over the forecast period,marginally slower than the national average

The key growth driver will be growing demand for higher qualityproducts (for example richer chocolate, premium offerings, healthierproducts) and the switch from the unorganized segment to theorganized segment due to increases in consumers’ disposableincomes.



In response to volatility in commodity prices, manufacturers willcontinue to watch costs closely

Given the forecast slowdown in the economy, consumersentiment may weaken, and manufacturers will be unwilling toraise prices

Leading manufacturers may live with narrow margins and drivevolume sales instead, or they may reduce pack size whilemaintaining same price points

Private label products are not expected to see dynamic growthover the forecast period› This is because margins are very narrow and retailers will not be able

to price private label products much lower than leadingmanufacturers such as ITC



Due to urban consumers’ desire for a higher quality of living,premium offerings in packaged food are less likely to beaffected by changes in the economic situation

Hence, manufacturers whose portfolio includes establishedbrands and premium products are expected to perform wellover the forecast period

Small manufacturers will see reductions in value share, as they

have less scale to cushion the impact of high input costs andsoftening consumer demand



Segmental Analysis



The Drinks Industry is divided into the followingsegments –

1) Soft Drinks:

This segment includes – Bottled Water

Carbonates

Concentrates

Fruit/Vegetable Juices

Ready to Drink (RTD) Coffee

RTD Tea



2) Hot Drinks:This segment includes – Tea Coffee Other Hot Drinks

3) Alcoholic BeveragesThis segment includes – Spirits Beer Wine



Fruit/vegetable juice outshines carbonates in terms ofgrowth as beverage companies continuing to invest indiversification away from carbonated beverages and intohealthier sub-sectors

The Indian juice market is a very attractive proposition for juice producers, but the market remains fairly immature.

This immaturity can be linked on the supply side to the highcosts of juice concentrates, transportation and packagingmaterials filter through to higher prices on packaged juice

products, leaving packaged juice producers in a weakerposition to compete against the price-competitiveinformal juice producers

RTD formats becoming popular due to convenience



Hot Drinks:

Success of retail chains leads to robust growth within hot drinks

Child-specific and female-specific other hot drinks drive volumesales

Hindustan Unilever and GlaxoSmithKline battle for leadership ridingon the popularity of the popularity of brands like Brooke Bond, Bruand Horlicks

Specialty teas and green tea still new but increasingly accepted

Fortified hot drinks still used by manufacturers to enhance productofferings



Tea sales growth for 2011 = +6.1% in local currency terms;compound annual average growth to 2015 = +6.7%

Point sales are forecast to reach a value of INR242.8bn(US$6.2bn)

Growth forecasts in the tea sector indicates a maturemarket

Green tea gaining popularity in urban India

Mature tea market prompting local tea manufacturers tolook abroad to specialty tea markets in UK and US



Coffee sales growth for 2011 = +10.6% in localcurrency terms; compound annual averagegrowth to 2015 = +11.6%

Point sales to reach INR52.9bn (US$1.3bn)

Growth rates and forecasts indicate a muchless saturated market and continued industrydynamism

The rapidly expanding middle class isembracing café culture



The changes in each segment can besummarized graphically as follows



The Growth drivers vary in each category within each segment. Theycan be listed as follows –

Soft Drinks: Supermarkets and hypermarkets accounted for a combined 9%

share of total volume sales in 2011

Manufacturers can showcase their new variants to capture newconsumers and enable them to understand the options. Thischannel is helping to facilitate the growth of soft drinks

Soft drinks players look towards supermarkets and hypermarketsas ideal channels to cater to the young, fashionable andrelatively wealthy consumer segments

This trend reflects the rise in disposable incomes available to theworking population of India



The real driver of growth to 2015 and beyond will be theincreased interest in the non-carbonated, healthy drinkscategory.

Sales of fruit juices and bottled waters are expected to

soar – a consequence of growing consumer interest inhealthy living but also thanks to the promotional, productlaunch and marketing efforts of the industry’s majorplayers, with sales of these higher-priced, higher-profit-margin products much greater contributors to financialperformance than carbonates.

Growth in the soft drinks sector will be supported bycontinued investment from the industry’s leadingplayers – namely US multinationals The Coca-ColaCompany and PepsiCo



Rising income would encourage the spread of wine consumptionacross India’s secondary and tertiary cities, with the Indian states ofKarnataka, Andhra Pradesh, Orissa, Chhattisgarh and Jharkhandrepresenting the strongest medium- to long-term opportunities

With dynamics such as the maturation of India’s youth population,rising purchasing power, greater exposure to Western influences andgrowing health awareness favouring growth of the domestic winemarket, wine has been steadily increasing its market share againstthe other alcoholic beverages

The strong growth in affluence and a rapid change in socialpatterns and lifestyles provide a strong impetus to international beersales



Food – convenience & various Beverages – Hot Drinks

Annapurna – Atta, Salt Brooke Bond Red label

Kissan – Jam, Ketchup, Squashes Brooke Bond 3 Roses

Knorr – noodles, soups Brooke Bond Taaza

Kwality Wall’s – ice cream Brooke Bond Taj Mahal

Modern Bread Bru – coffee

Lipton – Tea



HUL is also in a better position than industry players activeonly in a single product category to mitigate their exposure tocommodity price volatility, given their wider range of inputsand product offerings.

So though it is exposed to a greater variety of potentiallyvolatile input costs, the company is not completely exposedto sharp price movements for a single input and this offsetsthe direct impact of commodity price movements

HUL’s price hikes to protect its profit margins and boost valuegrowth, further price increase could frustrate its efforts toreach the rural consumer base given that majority of theIndian population still falls into the lower-income bracket andare unlikely to be able to afford the substantial price increase



Coca-Cola India, the local subsidiary of USsoft drinks giant The Coca-Cola Company

Market leader in India’s soft drinks industry. Itoperates across all soft drinks sectors in the

country, including carbonated soft drinks,fruit juices, energy drinks and bottled water



35

Coca-Cola



28

29

30

31

32

33

34

35

2007 2008 2009 2010 2011 2012

Coca-Cola

Turnover in Rs million

Production (Volume in million



Production (Volume in million

litres)

23

23.5

24

24.5

25

25.5

26

2007 2008 2009 2010 2011 2012

Coca-Cola

Coca-Cola



Amul Dairy is one of India’s largest food companies andone of the country’s best-known brands.

Jointly owned by an estimated 2.8 million milk producers,the company produces spreads, cheeses, UHT milk, milkpowder, fresh milk, curd and ice cream

It has been pursuing diversification into the confectionery,beverages and snack foods sub-sectors in recent years.

Amul also has a growing export business, with key marketsat present including Singapore, the US and the Gulfcountries.



Year Sales (INR, bn) Turnover (INR,)

Growth(%)

Growth



mn)

2010 80 80,053.6 52.2

2009 52.6 67,113.1 22.9

Product Type Retail value share(%) Rank

Confectionery 1.2 11

Dairy 14.6 1

Ice cream 36.3 1

Oils and Fats 10.8 2

Competitive Position, 2010, Foods



India’s biggest dairy recording anincrease in 20% of turnover from previousyear (2010-11)

Farmers in Gujarat are rejoicing over a 58per cent increase in their milk prices overthe last three years at a time when their

counterparts in other States werestruggling to make their milk businessviable in the absence of good returns



In 2011-12, 965 new Amul Parlours havebeen added, taking the total strength to6,315. Apart from the 170 parlours at

railway stations and 303 operating atvarious centres of excellence, Amul alsohas 600 air-conditioned ice-creamscooping parlours, making it the largest

single brand retail in the country



Members 13 cooperative milk producers

No of producer members 3.03 million

Procurement



No of village societies 15,712Total milk handling capacity 13.67 million litres per day

Milk collection (2010-11) 3.45 billion litres

Milk collection (daily avg) 9.2 million litres

Milk Drying Capacity 647 Mts per day

Cattle feed manufacturingcapacity

3690 Mts per day



Product diversification has been integral toAmul’s growth strategy in recent years

Entry into export markets – reduced Amul’s

reliance on the intensely price-sensitive marketof India

Invested in development of its distributionnetwork to enhance distribution efficiency and

increase sales opportunities – was essential andis important due to the perishable nature of thedairy products



The company will elevate its milk procurement andsupply chain capacities in order to sustain increasingdemand for branded milk and milk products.Employing a 2-pronged approach, it is likely toconcentrate on expanding its retail reach into ruraland semi-urban India on one hand, and introducingvalue-added dairy based products for urbanconsumers on the other.

Its recent venturing into ice parlour business – investment in new product development in new sub-

sectors to improve chances of poaching marketshare from its competitors



Expanding in the high-value sectors to tap on thegrowing affluence among India’s middle classes

Like its rivals, Amul is now struggling in the face ofelevated sugar, cocoa and milk prices – although

being a cooperative and buying directly from itsmembers, it is arguably more immune to rising milkprices than most

Growing importance of exports markets following the

company’s recent decision to implement anaggressive pricing approach that will keep prices in anumber of categories at their current levels.



Food – Snacks (Frito Lay India) Beverages – Soft Drinks



( y ) g

Aliva Pepsi & Diet Pepsi

Cheetos 7 UP

Kurkure Aquafina – drinking water

Lay’s Duke’s - soda

Lehar Namkeen Gatorade – sports drink

Quaker Oats Mirinda

Uncle Chips Mountain Dew

Nimbooz

SliceTropicana & Tropicana 100%- juices

PepsiCo Inc



22

22.5

23

23.5

24

24.5

25

25.5

26

26.5

2727.5

2007 2008 2009 2010 2011 2012

PepsiCo Inc

Turnover in Rs million

Production (Volume in million litres)



19.5

20

20.5

21

21.5

22

22.5

2007 2008 2009 2010 2011 2012

PepsiCo Inc

PepsiCo Inc



As part of extensive repositioning of its food & drinksportfolio, PepsiCo’s Frito-Lay plans to launch more than 50new products as it invests in scale and innovation toconsolidate its leading position in the country’s snackmarket

PepsiCo India continues to invest heavily in India, both toprevent Coca-Cola from building on its existing lead andto prevent smaller market players from threatening thedominance of the big two.

Capacity expansions at existing sites and new greenfieldfacilities are a priority, while greater investment in supplychain efficiency, market infrastructure (ie coolers andshelving units) and research and development are alsokey elements of its expansion strategy



PepsiCo India’s joint venture with Tata Tea(April 2010), gave access to a vastdistribution network and a strong localbrand name

Piloted the launch of cookies under theQuaker Oats brand› Being a relative latecomer to the Indian biscuits

market (PepsiCo launched its first biscuits brand

Aliva in the country in June 2009), PepsiCo couldface hurdles in building a significant marketfoothold against stiff competition from domesticand multinational confectioners



Future Trends



Exports growth – 13.7% , Compounded annualgrowth rate till 2015 – 16.2%

Imports growth – 12.1%, Compound growth rate till

2015 – 14.3%

Short term perspective for growth in trade looksbearish

Major challenges include underdevelopedproduction, harvesting and storage infrastructure.



Demand among a population with risingpurchasing power will contribute to theneed for more foreign-sourced products.

In particular, Westernised consumptionhabits and the need for ingredients not

widely produced on a local level willstimulate imports.



• Government’s recent hiking of diesel and petrolare also likely to put pressure on headlineinflation

• Pepsi Co’s recent outperformance to Coca – Cola India further reflects the heightened pricesensitivity of local consumers which has beendue to Pepsi Co’s willingness to absorb bulk of its

higher input cost.



India has a young and rapidly growing population ofmore than 1.2 billion.



As youth climbs up the income ranks, opportunitiespresented by the mass market catches the eye.

P & G’s focus on expanding its mass market portfolio istestimony to this view.

P & G plans to enter into new product categories such

as mass skincare products, hair oils and toothpaste in abid to leverage on the stronger rewards in this segment.



FDI will bring about positive spill over effects to theother consumer – facing sector in the industry.

The spread of organized retail would improve the

visibility of consumer products and facilitate thedistribution of products to local consumers



A th f k t i C f ti B d F



Among the four key segments, i.e., Confectionary, Bread, Funfood and Snack, and Food Juices and Concentrates; thehighest growth has been seen in the bread segment and theexpected demand in 2014-15 for bread is Rs 26.90 billion.

Food consumption growth rate 5.9%, compounded annualgrowth rate till 2015 = 7%

Per capita food consumption growth rate 3.3% andcompounded annual average growth rate 5.6%

Change of consumption habits over long term due to highdisposable income will lift up consumers ability to trade upexpensive stuff and non – essential purchases.

Th t il i d t i t d t h l



The mass grocery retail industry is expected to helpdrive up food consumption by presentingconsumers with wider range of higher-valueproducts

A dynamic industry should fuel competition whichwould in turn heighten marketing and promotionalspending as well as drive down the price of non –

essential items.



C f ti l l th 7 2 %



Confectionary volume sales growth – 7.2 % .Compound annual average growth rate till 2015 – 7.9%

Confectionary Sales value – 5.9% Compoundedannual growth rate till 2015 – 8.1%

Chocolate is expected to outperform its

counterparts with compounded annual growthrate of 10.3% till 2015

R id i th i i di bl



Rapid economic growth, increasing disposableincomes, increasing urbanisation and the continuedspread of mass grocery retail will all serve to stimulatethe demand for confectionery products

Buoyed by higher incomes, Indian consumers aregradually gravitating towards higher-value products inline with a growing familiarity with Western cultures.

Growth opportunities will remain via innovation andproduct diversification.

M f t h t t i I di



Manufcaturers have to capture unique Indiantastes and preferences.

A recent trend noticed is the nationalisation of

confectionary brands as local confectioners rollout their regional brands

Parle Products launched Top biscuits brand in West

Bengal and Assam to compete with SAJ FoodProducts

Parle Dabur India ITC Foods and Emami are already



Parle, Dabur India, ITC Foods and Emami are alreadyenjoying success from the launch of their regional brandsacross the country

Another distinct trend is Indian confectionary sector is

strengthening focus on healthy product offerings.

Britannia sharpen its focus on diabetic-friendly products andKellogs repositioning its brand as tastier and healthier.

Dunkin Donuts plans to set up 25 – 30 stores with the first yearof its partnership



Coffee growth at 10 6% and compounded annual



Coffee growth at 10.6% and compounded annualgrowth rate to 2015 – 11.6%

Tea growth at 6.1% and compounded annual

growth rate to 2015 – 6.7%

The Indian tea sector remains fairly mature, giventhe presence of major tea manufacturers such as

Tata Tea and Apeejay

Due to the maturity in the sector it is prompting



Due to the maturity in the sector, it is promptinglocal tea manufacturers to look abroad for futuregrowth opportunities, with special focus on US andUK

The outlook for the Indian coffee sector is muchmore attractive as a result of lower levels of marketsaturation and continued industry dynamism

Fresh & Honest’s recent espresso partnership withIlly and the entrance of Starbucks show a cleartrend towards premiumisation of the industry

With this in mind existing coffee players are clearly



With this in mind, existing coffee players are clearlynot resting on their laurels

Café Coffee Day took a period of 14 years to set

up 1,000 stores in India but is now planning todouble its outlet count

Starbucks will be positioning itself in the premium

end of the Indian coffee market

With this in mind existing coffee players are clearly



With this in mind, existing coffee players are clearlynot resting on their laurels

Café Coffee Day took a period of 14 years to set

up 1,000 stores in India but is now planning todouble its outlet count

Starbucks will be positioning itself in the premium

end of the Indian coffee market



As one of the fastest growing emerging markets



As one of the fastest-growing emerging markets,India’s impressive growth trajectory is supportive ofan acceleration of the premiumisation trend

This strong value growth could also be attributed tothe vast sums being invested by the world’s leadingcompanies into increasing production capacity aswell as marketing and branding initiatives

Continued investments from Asia Pacific Breweries



Continued investments from Asia Pacific Breweries,Cobra Beer, Carlsberg and Anheuser-Busch InBevwill only fuel this trend

Beer will continue to dominate the sector in termsof volume, with compound annual averagegrowth forecast at 6.2% to 2015

Indian consumers can pay more than twice asmuch for foreign beer brands than locally brewedbeer brands owing to the 100% import duties leviedon foreign brand

With the Indian alcoholic drinks market traditionally



With the Indian alcoholic drinks market traditionallyfocused on spirits and beer, wine consumption isstill largely a fledgling concept in the country

Continued investments from Asia Pacific Breweries,Cobra Beer, Carlsberg and Anheuser-Busch InBevwill only fuel this trend

Beer will continue to dominate the sector in termsof volume, with compound annual averagegrowth forecast at 6.2% to 2015

Indian consumers can pay more than twice as much forf i b b d th l ll b d b b d i



Indian consumers can pay more than twice as much forforeign beer brands than locally brewed beer brands owingto the 100% import duties levied on foreign brand

With the Indian alcoholic drinks market traditionally focused

on spirits and beer, wine consumption is still largely a fledglingconcept in the country

Indian wine producer Sula Vineyards’ strong revenue growthof around 40% for its latest financial year underlines

burgeoning domestic demand for wine

India has around 303mn people aged 20-34



India has around 303mn people aged 20-34,among which wine is increasingly perceived as asophisticated alcoholic beverage and a symbol ofsocial prestige

Accompanied by growing health awareness,Indian consumers are developing a greaterpenchant for wines



Soft drinks growth at 7 5% Compounded annual



Soft drinks growth at 7.5%. Compounded annualgrowth rate at 4.9% till 2015

Soft drinks value sale growth at 7.5%. Compounded

annual growth rate at 9% till 2015

India’s soft drinks sector is forecast to experiencebullish growth over our forecast period

Growth in the soft drinks sector will be supported by



Growth in the soft drinks sector will be supported bycontinued investment from the industry’s leadingplayers – namely US multinationals The Coca-ColaCompany and PepsiCo.

Both have committed large sums towardsexpansion in India in recent years owing to thepotential that the vast market

The real driver of growth to 2015 and beyond willbe the increased interest in the non-carbonated,healthy drinks category

Sales of fruit juices and bottled waters are expected tosoar a consequence of growing consumer interest in



Sales of fruit juices and bottled waters are expected tosoar – a consequence of growing consumer interest inhealthy living

There is no doubt that the Indian juice market is a very

attractive proposition for juice producers, but the marketremains fairly immature

This immaturity can be linked to a combination ofdemand and supply factors

Expensive packaging and transportation costs arearguably the other disincentives for packaged juiceProducers



Mass grocery retail sales growth +19.7%; compound annualaverage growth rate to2015 = +17 6%



g y g ; paverage growth rate to2015 = +17.6%

Indian consumers are still largely familiarising themselves withthe concept of modern retail, which accounts for only 9% of

overall grocery retail sales

Four key modern formats (supermarkets, hypermarkets,convenience and discount stores) are already present withinIndia’s mass grocery retail

Dominant ones being Pantaloon Retail, Reliance Retail, andBig Bazaar.

Low purchasing power, Indian consumers have beenrelatively slow to trade up to modern retailing methods



p g p ,relatively slow to trade up to modern retailing methods.

Another factor is the restrictive business environment ofIndia’s MGR sector

Indian consumers are expected to increase their spendingand turn to modern retail formats in search of theconvenience and quality

Global retail giants Walmart and Carrefour, for instance, havealready set up cash-and-carry stores in India throughpartnerships with local conglomerate Bharti Enterprises andFuture Group



India is one of the world’s major food producers but accountsfor only 1 7% (valued at US$ 7 5 billion) of world trade in this



j pfor only 1.7% (valued at US$ 7.5 billion) of world trade in thissector

This share is slated to increase to 3% (US$ 20 billion) by 2015

Sustained by high agricultural output, international demandand a strong domestic market, the Indian food industry offersample scope for large investments in processingtechnologies, skills and equipment, packaging, refrigeration

of frozen food and thermo processing.

Next few years India aims at raising the share ofd f d t 20% i i t t t l i



y gprocessed food to 20% in comparison to total agri-produce

Market experts are of the opinion that in future, thefood products is going to increasingly contributetowards India's GDP growth



Adopt proactive product and servicedifferentiation strategies



p p pdifferentiation strategies

Focus on successful product lines and global

diversification in order to drive sustainable growth

Focus on product innovation as a long term goalfor a sustaniable competitive edge

Understand the consumer's motivation for buyingyour product

Fear of Greed : These are the primary motivators that impactswhether the consumer will buy your product or not.



whether the consumer will buy your product or not.Consumers will be more willing to buy if the producteffectively communicates that it will help avoid a potentialloss or paint or help to deliver a gain or pleasure

Effectively communicate the indirect costs of productswitching

Look for opportunities that will communicate to consumers

that product switching entails a sacrifice. Such cost should bepitched as an investment opportunity to the consumer

Invest in marketing strategies that focuses on yourcore product offering



g g ycore product offering

Show that your product is an essential component

of the average consumer's grocery basket

Build brand equity through targeted efforts byMarketing and Sales

Company positioning as a partner to help endusers through this tough economic time

Integration of disparate products into a complete solution



Exploit opportunities from consumer feedback

Proactively seek the final consumer's need set and match

product lines to those needs

Establish partnerships with other suppliers

Seek out joint branding with other manufacturers to exploitcomplementary synergies

food industry analysis

Documents