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McCain's next big India venture
Kishore Singh | October 08, 2005
Six inches long and 350 grams in weight, it's got Jaideep Mukherji all excited. "The specifications," he smiles, "are just right."
On the table in front of us is a sample of the humble spud or potato that Mukherji is talking about, which when processed will start turning the McCain factory in north Gujarat into a formidable supplier of processed potato foods.
Easy, of course, in a country where potato consumption is well established, but for McCain Foods India, the journey has been neither short nor easy. Set up in 1998, with a mandate to import the $6bn Canada-based McCain's products (french fries for McDonalds and other institutional buyers; later, potato wedges; its Smiles line for kids; and TastiTaters nuggets), it also began to check out the potential for growing the potato locally.
That's because the local potato crops did not match its requirements in size, shape or even taste for making either the fries or the wedges. "The potatoes weren't to our specifications in size, nor did options for storage match up."
McCain had adopted the classic route in terms of creating brand awareness by first importing the product, then setting up a distribution chain (initially institutional buyers, later through retail outlets with deep freeze facilities), before pumping in money into agronomy research.
The reasons are evident: grow the potato locally to increase its marketshare at a price that's way below the current price points. "It should help bring down the price by at least 25 per cent," says Mukherji -- which, in a price sensitive market, isn't to be sneered at.
For the purpose, the company has already invested $5 million in identifying the best potatoes and potato growing regions in India. Over the last five years, McCain selected 11 imported and two local potato varieties and monitored their growth in Punjab, West Bengal, Uttar Pradesh, Haryana, Madhya Pradesh, Karnataka and Gujarat.
Through a process of elimination, it has now arrived at two imported and one domestic variety of potato, and this November, 1,000 acres of sandy, loamy soil in the Mehsana and Banaskantha regions of north Gujarat will begin the sowing for McCain's next big venture in the country -- its Rs 70 crore (Rs 700 million) processing plant in Mehsana that begins production in July 2006.
It is, says Mukherji, a win-win situation. "We've picked contract farming as the best option, but we aren't asking the farmers to grow only potatoes, and we aren't buying out 100 per cent of the produce either, as a result the farmer isn't dependent on only us. The pricing is negotiated based on potential yield, crop seed and irrigation method, in advance."
Now here's the mathematics: the yield per hectare with McCain's Kufri Chandramukhi, Kenne Bec and Shepody varieties, based on its technology of lesser tubers of greater mass, has increased by as much as 60-70 per cent.
If the Indian average yield for potatoes is 18 tonnes per hectare, and in Gujarat is 22 tonnes per hectare, in the fields under McCain production, it has averaged 40 tonnes per hectare. In addition, using the sprinkler or drip irrigation method, its consumption of water is lower, making the farming practice more environment friendly.
A measure of the confidence in the market is the factory that has the capacity to process 30,000 tonnes of potato annually. Already, Mukherji says the area under potato cultivation to feed the plant will increase to 2,000 acres in the second year of operation, and 4,000 acres -- its optimum level -- in the third year. Significantly, growth of processed foods, 30 per cent year on year so far, is now set to grow by 50 per cent year on year for the next couple of years.
"Besides QSRs (quick service restaurants) and independent food units (hotel and restaurant chains such as the Oberoi and Taj groups, Pizza Hut, Jet Airways and Haldiram's), the challenge lies in independent retail stores. Fortunately," he says, "grocery retail supermarkets seem to be attracting a good deal of investment."
Typically then, the logical next step will be to customise McCain products to local tastes. Even though the fries and wedges have a good market, Mukherji says that, to begin with, even the international range could be modified -- the french fries could get a spicy coating, local herbs used for the wedges, the Smiles blended with cheese.
"And we're looking for recipes for mass production of ethnic Indian snacks," he says. McCain's aloo-tikki, for instance.
While internationally, QSRs absorb 70 per cent of production (with people dining out much more), Mukherji hopes that in the first 10 years of operation in India, the company will be able to manage a 50 per cent production penetration in home consumption, which is going to be a major market for his products.
"For the moment," says a manager of a cafeteria, "their range is limited and the repeat factor has an inbuilt fatigue element built into it," something that spicing up the products should change. The factory also plans to export 10-15 per cent of its output to South and South-east Asian countries and the Middle East.
With very heavy investments in plant machinery where all functions are handled by remote, Mukherji says return on investments will not be before 5-7 years. Even so, the company has made its intentions clear in purchasing extra land next to the factory where it hopes to expand as business grows.Of course, the growth might not be restricted to merely the 6-inch long spud. For, even though every third french fry consumed in the world is a McCain product, the company that sells in 110 countries around the world also distributes frozen vegetables and pizzas. Clearly, it hopes to keep India on a healthy vegetarian diet.