rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » Indian foods business poised for leap

Indian foods business poised for leap

June 23, 2009 10:26 IST

The Indian foods industry is at an inflection point, believe major fast moving consumer goods companies. While Hindustan Unilever has already worked out a 10-year turnover road map, others like ITC and PepsiCo are scaling up their businesses to cater to the rapid growth.

HUL, which has completed 75 years of operations in India, is confident that its foods business alone will reach a top line of more than Rs 20,000 crore (Rs 200 billion) almost its current turnover) over the next decade. If it achieves this target, the figure will be at least eight times more than the current turnover of its food and beverages division.

For the 12 months ending December 2008, the division's turnover stood at Rs 2,642 crore (Rs 26.42 billion), of which beverages (Brooke Bond and Lipton) accounted for Rs 1,805 crore (Rs 18.05 billion), processed food (Knorr and Kissan) for Rs 647 crore (Rs 6.47 billion) and ice creams (Kwality Walls) raked in Rs 190 crore (Rs 1.9 billion).

"Processed foods contribute to less than 5 per cent of India's food consumption. However, by 2012 the market will grow by 44 per cent to be a $90 billion market. And packaged foods will grow even faster, at 68 per cent, to be a $22 billion industry. Moreover, the per capita packaged food spending will increase by 57 per cent to $18 by 2012," asserts HUL executive director (foods), Shrijeet Mishra. For instance, in the 1930s, Indians did not drink tea. Today, the consumption of tea is seven million tonnes and is largely driven by brands like Brook Bond and Lipton.

Says Abheek Singhi, partner at The Boston Consulting Group: "If the company adds Rs 1,500-2,000 crore (Rs 15-20 billion) to its topline every year, then the target of Rs 20,000 crore in 10 years is surely possible."

However, he qualifies, "Considering Indian consumption habits will not change that much over the next 10 years, the company would need to focus on oils - a Rs 15,000 crore market - and staples like dals and atta (HUL has Annapurna atta) to achieve this growth and also strengthen its back-end supply chain to achieve the scale."

Additionally, the foods business requires large risk appetite and HUL is not particularly known to have one, say other analysts. For instance, after seven years in the foods business, ITC's food division is still in investment mode, with certain segments yet to turn profitable even though it has become one of the top three players in the segments it operates in. "To achieve a revenue of Rs 20,000 crore, the company will require investments of Rs 5,000 crore (Rs 50 billion) and their ability to stay put for a long period of time will determine their ability to penetrate this segment," says Nikhil Vora, MD, IDFC SSKI.

Meanwhile, FMCG players like PepsiCo and ITC are also gunning in this high-growth market. For instance, Frito-Lay India has planned a $150 million investment for the next three years in the food market.

Earlier this year, the maker of salty snacks like Kurkure and Desi Beats had diversified into the biscuits category with Aliva. "The aim is to address new consumer needs and thereby grow our portfolio in the near future," says Deepika Warrier, marketing director, Frito-Lay.

The company had driven growth and conversion of a predominantly unbranded salty snacks' market to a branded snacks market now estimated at Rs 3,000 crore (Rs 30 billion) with its entry in the segment in 1989.

Likewise for ITC, maker of Classic and Wills cigarettes to Fiama di Wills shampoo, Bingo chips, Sunfeast biscuits and Aashirwad atta, the foods business is a high-growth area. For, the industry, despite the slowdown, is garnering a 15 to 16 per cent growth rate. "Our objective is to grow at a higher rate than the market rate," says Chitranjan Dar, chief operating officer, foods division, ITC.

ITC's e-Choupal, for instance, gives the company tremendous synergies in its spices business. "We are exploring new segments and new product extensions and also for synergistic growth to harness our e-Choupal capabilities as we grow our foods business," says Dar.

Sapna Agarwal in Mumbai
Source: