India Food Guide - Flavour, Fitness and Fancy; sector report (Edelweiss pdf link)

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Food on fire

“There is no love sincerer than the love of food” - George Bernard Shaw

The domestic Food and Beverages (F&B) market is a critical cog in the growth wheel of most consumer companies. Unlike apprehensions of market participants on sustainability of growth, our survey findings indicate that growth is not only here to stay, but will also move into the next orbit with the introduction of new products and categories. Higher growth will also improve overall profitability (as margins are relatively higher).

Further, as is the norm, when all companies are in expansion mode, only a handful emerge potential winners. Hence, to understand these changing dynamics, we commissioned an extensive research across categories of F&B. Simultaneously, we dwelled on what we believe is the most important component for growth of F&B—development of a supply chain in India. We also delve deeper into the regulatory framework for this segment.

With many food companies being privately held or regional, we tried to cover important unlisted players with a view to gauge the demand growth, competitive scenario and brand preference in the sector. We conducted a survey in urban markets (focused on earning population encompassing both genders). A field study of the same survey was also conducted that comprised face-to-face interviews of consumers at neighbourhood stores and hypermarkets. This was backed by secondary research primarily done to study changes in consumer habits and brand preference.

Key questions addressed in the survey include:

·       How has the consumer food habit and brand preference evolved over past 3-5 years?

·       What is the likely growth and key drivers?

·       How sustainable is the current market growth across different food categories over next 3-5 years?

Based on our survey findings, industry interactions, study of trends in China and analysis, we expect the growth trajectory to accelerate to 20% CAGR over the next five years (past five year CAGR of 18%). Our biggest bets are staples (current size ~INR3,325bn; packaged staples to grow at 18%), snacks (current size ~INR409bn; expected growth rate 20%), dairy (current size: ~INR3,500bn; expected growth rate 10%), beverages (current size ~INR193bn; expected growth rate 14%), and bottled water (current size ~INR30bn; expected growth rate 22%).

Overall, branded players are expected to grow much faster (branded snacks growing at ~20% versus 7% for unorganized players) than the total market. We expect Nestle, ITC, GSK, Britannia, Marico, Agro Tech to be the biggest winners. We expect HUL, Dabur and Tata Global Beverages also to do well.  There are big gaps in product portfolios of foreign parent companies and their Indian arms. We expect the latter to launch products from their parents’ stables; however, most products will need high localisation apart from India-specific products.

India Food Guide - Flavour, Fitness and Fancy; sector update