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We recently attended FICCI conference 2011 ‘FOODWORLD India 2011’,
during which we met several listed and unlisted companies as well as
government stakeholders in the food processing industry. The key
message was—processed food is a multi‐year theme (to grow ~4.5x by
2020) and to cash in on the same will require streamlining the value
chain, tackling competition and regulatory decisiveness. Our interactions
reiterate our long‐term bull thesis on the packaged food industry; we
expect Nestle, ITC, GSK, Britannia, Marico, HUL and Agro Tech to be the
biggest beneficiaries.
Food processing to jump ~4.5x by 2020, outperform non‐food
According to Mr. Antonio Helio Waszyk, MD, Nestle India, Indians spend ~35% on food,
which translates into ~USD330bn per year (of which only USD40bn is currently
processed). Processed food, as per a FICCI‐BCG report, is likely to reach 20% of total
food consumption, which is expected to grow to ~USD900bn by 2020. Urbanisation, rise
in working women, low penetration, higher disposable incomes and evolving consumer
habits will ensure that packaged foods will grow at a sustainable superior clip compared
to other consumer categories. The packaged F&B segment has zoomed up in the past
five years, posting a CAGR of ~18%, and we expect the growth trajectory to accelerate
to 20% CAGR over the following five years. Also, the food segment’s profitability profile
has turned superior than non‐food as the competitive intensity is lesser in the former
since penetration level and per capita consumption is low.
Streamlining supply chain and regulations key
The agri‐supply chain in India faces several constrains. It involves multiple players such
as farmer, aggregator, commission agent, wholesaler and retailer, which results in price
rise. Inadequate storage facilities lead to significant wastages (wastage is ~35% for
tomatoes, ~30% for mangoes and ~25% for potatoes). High capex for setting up cold
storages, warehouses and shortage of power are major hindrances to ramping up of
supply chains. Therefore, FDI in modern retail will be the most important trigger,
feeding investments in back‐end operations. Supply chain efficiencies will help offset
inflation and deliver packaged food as a value proposition to consumers.
Outlook: Ample food for thought
We believe the food processing industry has reached an inflection point, evident from
the number of new entrants in the past few years (Conagra via Agrotech, Kraft via
Cadburys, Danone, McCain, ITC, etc.) and large scale capacity/product expansion
(Nestle, Pepsico, HUL). These investments, though at a nascent stage, will eventually set
the base for the next leg of growth. Most leading players are adopting a more localised
business model, including India specific products and a well‐spread out distribution
network. Right strategy in processed food is more about baking a new cake, rather than
launching me‐too products to get a small market share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We recently attended FICCI conference 2011 ‘FOODWORLD India 2011’,
during which we met several listed and unlisted companies as well as
government stakeholders in the food processing industry. The key
message was—processed food is a multi‐year theme (to grow ~4.5x by
2020) and to cash in on the same will require streamlining the value
chain, tackling competition and regulatory decisiveness. Our interactions
reiterate our long‐term bull thesis on the packaged food industry; we
expect Nestle, ITC, GSK, Britannia, Marico, HUL and Agro Tech to be the
biggest beneficiaries.
Food processing to jump ~4.5x by 2020, outperform non‐food
According to Mr. Antonio Helio Waszyk, MD, Nestle India, Indians spend ~35% on food,
which translates into ~USD330bn per year (of which only USD40bn is currently
processed). Processed food, as per a FICCI‐BCG report, is likely to reach 20% of total
food consumption, which is expected to grow to ~USD900bn by 2020. Urbanisation, rise
in working women, low penetration, higher disposable incomes and evolving consumer
habits will ensure that packaged foods will grow at a sustainable superior clip compared
to other consumer categories. The packaged F&B segment has zoomed up in the past
five years, posting a CAGR of ~18%, and we expect the growth trajectory to accelerate
to 20% CAGR over the following five years. Also, the food segment’s profitability profile
has turned superior than non‐food as the competitive intensity is lesser in the former
since penetration level and per capita consumption is low.
Streamlining supply chain and regulations key
The agri‐supply chain in India faces several constrains. It involves multiple players such
as farmer, aggregator, commission agent, wholesaler and retailer, which results in price
rise. Inadequate storage facilities lead to significant wastages (wastage is ~35% for
tomatoes, ~30% for mangoes and ~25% for potatoes). High capex for setting up cold
storages, warehouses and shortage of power are major hindrances to ramping up of
supply chains. Therefore, FDI in modern retail will be the most important trigger,
feeding investments in back‐end operations. Supply chain efficiencies will help offset
inflation and deliver packaged food as a value proposition to consumers.
Outlook: Ample food for thought
We believe the food processing industry has reached an inflection point, evident from
the number of new entrants in the past few years (Conagra via Agrotech, Kraft via
Cadburys, Danone, McCain, ITC, etc.) and large scale capacity/product expansion
(Nestle, Pepsico, HUL). These investments, though at a nascent stage, will eventually set
the base for the next leg of growth. Most leading players are adopting a more localised
business model, including India specific products and a well‐spread out distribution
network. Right strategy in processed food is more about baking a new cake, rather than
launching me‐too products to get a small market share.
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