MNCs' Entering Traditional Foods Sectors
Mckensey did a study on the opportunity in India for food and agri business at the behest of Confederation of Indian Industries (CII). And as expected they projected a huge potential in food sectors and said that the real potential lies in traditional, local food and grocery items -- but not so much in westernised processed food. Some of our big multinationals seem to have swallowed the Mckensey advise-pill and got into this sunrise sectors.
Historically, traditional food items were the domain of small local players. Grocery items earlier were sold loose and unbranded. Then some progressive traders started the cleaning, grading and primary packaging. And the next stage of development was branding of primary foods such as Atta (wheat flour), Rice etc. but those were mainly regional brands. Popular among these were "Rose" and "Shakti Bhog" brands in northern India.
Whereas in traditional food items such as spice and pickles there were host of local brands with regional strong-holds such as 'Cookme' spice powder in East, 'Bedekar' pickles in West, 'MDH-masala' in North etc., to name a few. And the food ingredients -- nobody thought of. Only food ingredient that was there was tomato puree and paste in cans which in the recent times Godrej introduced in tetrapack.
Edible oil in tin pack and later on in polyester jar and tetrapack were the first major step in branding grocery items. "Postman" -- peanut oil from Ahmed Mills was one of the oldest popular brands. Today we get variety of edible oils and NDDB and Marico are the leading players in this sector. Amongst MNCs we have "Mazola" corn oil from CPC and "Sundrop" from ITC Agro -- a sunflower oil which subsequently has been acquired by CONAGRA - the fastest growing food company in America. With CPC and CONAGRA being involved in edible oil market this sector is going to be soon dominated by MNCs.
The next major attempt to market a branded grocery item was done about a decade ago by Tatas by introducing the first refined iodised salt in poly bag by brand name "Tata Salt" and that was a success. The next big brand in this category is "Captain Cook" from DCW Chemicals who had plans in branded grocery items and thus the company introduced other items including wheat flour under the same brand name. But that was shortlived. During 1997 DCW Chemicals suffered a major setback and the company decided to divest this food business. The acquirer is Corn Products Co. (India) Ltd. -- a wholly owned subsidiary of CPC-International a nine billion US dollar American multinational in food and grocery business. The company has recently changed its name to Best Foods Ltd. CPC was a sleepy company operating in India for over fifty years and their performance was lacklustre. With their limited range of Rex and Brown and Polson brands of convenience foods, the parent company, although doing well globally did not have any commitment in India. In late seventies and early eighties when I was heading their project department many investment proposals were sent and notably among those were dextrose manufacturing project as CPC has a flavoured glucose brand in the portfolio and Knorr soup project. But project work used to be carried out by us endlessly but nothing got implemented. In post liberalisation era, this apparently sleepy company seems to have become active. The third brand of salt is "Kissan Annapurna" which is making a sustained effort to get market share. This brand which is now in Hindustan Lever's fold through Brook Bond acquistion who in turn acquired Kissan in early nineties have reportedly spent Rs.18 crores in advertising and got 14% market share in a Rs.200 crore branded salt category in a span of one year. Tata Salt still holds 26 percent market share and Captain Cook's share is about 20 percent and balance forty percent is still with the smaller players. With the acquisition of "Captain Cook" in branded salt market MNCs are the dominant players controlling sixty percent of the market.
The value addition in branded salt and pepper was really done successfully by a Delhi based local company Hi-Tech Foods belonging to Dharampal Satyapal of premium "Baba Zarda" (chewing tobacco) fame. Hi-Tech Food's `Catch' brand of salt and pepper in dispenser pack is a success story with upper middle class household and restaurant segments as the main customers. The sale of "Catch" is said to be around Rs.12 crores.
The first MNC to get into the branded spice business was Brook Bond who introduced the select premium priced spice range by name "Sona" in late eighties. The products were priced and packaged for higher income group. They struggled for couple of years to establish "Sona" brand but failed and was forced to withdraw in later years. Apparently we don't see any major MNC in branded spice but world leader in exotic spices "Macomac" seems to have plan to enter Indian market.
The first MNC to introduce Indian pickles was Nestle with their Maggie brand. The products are still in the market. And as mentioned earlier, the first MNC to introduce traditional snacks (bujjias) is Pepsi under the umbrella of "Leher Namkins". It can be concluded that in traditional Indian foods MNCs cannot add much value through the involvement of their principals abroad. On the contrary, they will have to learn from the locals to derive advantage of their brand and resource muscle.
Hindustan Lever is expected to enter branded grocery items though Kissan route in a big way. The company does significant export of branded rice particularly in Middle East market and therefore expected to introduce the branded rice shortly in domestic market as well. Otherwise, in India so far branded packaged rice is limited to Basmati rice and there are many brands in this category and leading among them is "Kohinoor" -- but all are from small manufacturers. The grocery business is basically low margins and high volume business and thus it required multiple supply source to be strategically located to reduce the cost of freight and excellent distribution infrastructure and logistics management capability. Big houses like HLL, therefore are expected to do much better in this sector.
In the food ingredients business MNCs have not yet traded. The only big player in this area is Dabur with their range of pastes such as onion, garlic, ginger and also mix of these for particular application. Current sales of these items which are sold under the umbrella brand "Hommade" is said to be Rs.5 crores and going by that standard it can be considered as a reasonable success. Very recently, "Cookme" curry paste has been launched in Calcutta. The market indicators point towards growth in the branded food ingredients business in coming years. Pepsi is expected to get into this category and with their backward linkages with farmers whom they support with the high yielding variety of seeds for better crop yield, it stands to have an edge over others in this sector. One could have expected that Nestle would also jump into the fray in this sunrise food business -- but their new Italian Managing Director Mr. Carlo Donati seems to have other priorities and they want to focus on major key brands.
Price and quality are expected to be the major
determinant in the success of grocery items and basic foods.
Consumers in India would not be willing to pay much as the
price of convenience. Big global brands to MNCs' in that
context are therefore not much of significance.
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