Scaling New Heights
The Indian food industry is poised to grow by a whopping 42.5 per cent from US$ 181 billion (Rs 843460 crore) now to US$ 258 billion (Rs 1202280 crore) by 2015 and by 76 per cent to US$ 318 billion (Rs 1481880 crore) by 2020, throwing up huge opportunities for investment across the entire value chain, according to a FICCI-Ernst & Young study.
The study, Flavours of Incredible India—Opportunities in the Food Industry, notes that the Indian food industry is a significant part of the Indian economy with food constituting about 30 per cent of the consumer wallet.
The study has identified key drivers for growth in the sector as an increase in per capita disposable income by 8 per cent over last five years, which has led to an increase in per capita consumption expenditure on food by 20 per cent over the same period. A large part of the increase in income will go towards expenditure on food as the data clearly suggests. The current per capita expenditure on food is 1/6th that of China and 1/16th that of US with a significant opportunity for growth in the future; growth in the size of the middle to very rich class which is projected to increase at more than 300per cent between 2005 and 2015. During the same period the youth population (age group 15- 25) in India is expected to grow by 11per cent. This will lead to an increasing demand for food products to meet demands of convenience, variety, health and a changing palate; and emergence of Tier 1 and Tier 2 cities which will present a key opportunity for future growth due to rising income, increased awareness and limited availability of products currently in these markets.
India is a one of the largest producers of agri, milk and meat products. Considering the current yield, which is the lowest amongst the BRIC countries, this presents a significant opportunity for growth to meet the increasing demand for food. The contributors or producers can look forward to increase yield substantially through better technology and processes. As a result, this sector presents opportunities for participation amongst players in farming,
infrastructure, storage and logistics, etc. to meet the demand of food products both locally and the internationally markets, says the FICCI-Ernst & Young study.
The FICCI-Ernst & Young study lists out key opportunities in the food sector in India, which include: Driving growth in food consumption and spending through increased market penetration, addressing new emerging markets and launch of new value added products to meet the needs of convenience, health and variety.
Supporting the Indian creator by providing technology to improve yield, faster and improved access to credit and better sourcing to maximize returns for the creator.
Re-organising the supply chain to enable reduction of post-harvest losses especially in fruits and vegetables, which now amounts up to 25 per cent by value. This would mean an opportunity to set up warehouses, cold stores and logistics infrastructure.
Launching products and increasing penetration of tertiary and processed foods, which has a huge potential for growth. Tertiary processed foods currently account for almost 26 per cent of the consumption with a large part of just beverages and oil.
Creating a base for exports of value added food products with current exports of tertiary food products only at 9 per cent of overall food exports.
The study points out that as much as 70per cent of the current food spending by the Indian consumer is on agri-products. Additionally, two-thirds of this spending is on primary and secondary processed products. In agri-products, fruits and vegetables (F&V) is the largest consumption category and accounts for over 50 per cent of the total consumption. While, milk and milk products and meat and marine products contribute the remaining 30per cent of consumer food spending, they have been growing at a faster rate as compared to agri products.
This has been driven by the rise in disposable income along with a steady rise in the youth population where the acceptance of meat and marine products is higher. Further, in case of milk and milk products, the presence of established and organized players has resulted in increased availability and accordingly increased consumption of these products.
The key socio-economic changes which will impact the growth of the food industry are: a fourfold growth in the size of Indian households in the middle to very rich class which will result in the Indian household consumption to doubling by 2015; an increase in the youth population in the country; growing migration of population from rural India to urban India.
The FICCI-Ernst & Young study states that along with the socio-economic changes, there are key lifestyle changes expected which will result in a transition of the consumers’ consumption patterns: growing number of nuclear working families who have limited time for cooking and hence are driven by a high need for convenience, an increasing incidence of lifestyle diseases such as diabetes, asthma and obesity resulting in a demand for healthy products, growing level of international exposure, which has led to consumer awareness of newer concepts in international cuisines along with an acceptance of such products, and an increased consumer awareness driven by media penetration and celebrity chefs promoting new cuisines and product categories. This phenomenon is not restricted to urban areas, because rural Indians are often exposed to such processed products through their urban family members.
These lifestyle changes are expected to create a demand for products, which meet the needs of convenience, health and variety. This also provides an opportunities for companies to increase consumption in new and high value added processed products and to reach and target beyond the Indian metro cities.
However, the study notes that there are three key critical success factors, which need to be considered to tap the opportunity offered by the Indian food industry. These are: Local market delivery incorporating local tastes and preferences The consumption habits of the Indian consumer are diverse across the different regions of the country. Hence new product launches should incorporate the local preferences, Price-value offering Price being one of the most important considerations for choice of food, the price/value equation has to be carefully evaluated before any new product launch, and communication to increase awareness Investment in increasing consumer awareness and marketing is essential to reach target consumer across all geographies. With different languages in each state, the task of reaching consumers is a unique challenge in India.
By K Anjna