Mumbai: Yoghurt, cookies and cheese are global staples but relatively new in India, and it is foods such as these that will drive growth of the domestic packaged food market in the coming decade, says a new study.
New and emerging packaged foods will grow at double the rate of the more established categories such as milk, biscuits and bread, it said.
Consulting firm Bain and Co. and lobby group Federation of Indian Chambers of Commerce and Industry (Ficci) released the report on Wednesday at the sixth Food World India 2012 conclave in Mumbai.
Mature categories such as plain milk, bread and biscuits account for nearly half of India’s packaged food market, which includes confectionary, dairy, baked goods and household staples such as packaged rice. The size of this market as of December was Rs.1 trillion, the report said.
The plain milk, biscuits and bread categories will grow at 8% annually, whereas new categories, which include so-called value-added foods, will grow at over 19% till 2020, the report said. The overall packaged foods sector grew at nearly 13% in the past few years but will pick up pace and grow at about 15% going forward after accounting for inflation, it said.
“Changing demographics, dual income households, rising affluence and increase in number of consumers buying packaged food is driving the growth of the sector,” said Nikhil Prasad Ojha, partner, Bain and Co. India Pvt. Ltd.
There is a so-called “sense revolution” taking place in India, Santosh Desai, managing director and chief executive of Future Brands, said at the Ficci forum, explaining that growth in the packaged goods sector was being driven by the changing attitude of Indians as compared with the previous generations that largely frowned on eating out or having ice creams or chocolates.
For Mother Dairy Fruit and Vegetable Pvt. Ltd, the milk, fruits and vegetables categories, which account for about 80% of its revenue, are growing at a slower pace of 12-15% a year while value-added products such as ice creams and yoghurt are growing at 30%, says managing director, Siva Nagarajan. The higher growth, though, is from a lower base and contribution to revenue has increased.
Even in biscuits, a Rs.12,000-crore category, cream biscuits and cookies claim 45% of the overall market and are growing faster than the plain varieties.
“Creams and cookies is growing faster than the overall category and categories like glucose (biscuits),” said Chandramouli Venkatesan, director, strategy and snacking, Cadbury India. The firm launched its billion-dollar cookie brand Oreo in India last year and has limited its presence in the country to the cookie and cream biscuits segment. The high growth of the packaged food sector has attracted huge investments the past few years through joint ventures, foreign institutional investment and private equity (PE) firms.
Between 2008 and 2011, PE investment in the food and agriculture sector totalled $650 million (Rs.3,400 crore). The Indian government has set an investment target of $20 billion in food-related infrastructure from the private sector, the report said.
So far this year, the packaged food sector drew eight PE and venture capital deals worth $64.26 million, according to financial researcher VCCEdge. Earlier this month, IDFC Private Equity invested in Parag Milk Foods Pvt. Ltd, which has diversified into value-added foods under the brand Go for cheese.
The high growth is also prompting foreign food companies to invest more in India.
“We will look for acquisitions to fill gaps in our portfolio or give us geographic presence or for companies that can provide linkages to (the) parent in categories like confectionaries, ready food and fruits and vegetables,” said Sanjay Sharma, chief executive, MTR Foods Pvt. Ltd, which was acquired by Norwegian food company Orkla ASA in 2007.
Last year, MTR, which expects to grow its revenue from Rs.350 crore in December 2011 to Rs.1,000 crore by 2015, bought Pune-based ready-to-cook packaged foods maker Rasoi Magic.
French dairy Danone SA, which recently bought Wockhardt Ltd’s nutrition business for its brands such as Dexolac, Farex, Nusobee and Protinex, wants to double its revenue from India in three-four years, said Lurent Marcel, managing director, Nutrica International Pvt. Ltd. The firm’s India business with a revenue of Rs.300 crore is among the fastest-growing markets for the parent, he said.