Industry is Benefiting from the Collective Efforts and Investment


Rajat K. Baisya

Collective-Efforts-and-InvestmentFood industry in India was suffering from low growth despite efforts from the marketers. The price of the processed food products were always much higher than that of fresh produce and those were not within the affordable limit of the majority of our customers. The result was that the processed food was always considered as the product for the elitist. On the top of this, the consumption expenditure was reducing in processed food as a percentage of total household expenditure and the customers were seen to be diverting their surplus income into other lifestyle products including consumer durables. We have thus witnessed a big growth in those sectors but not in processed food. The manufacturers were finding it difficult to reduce the price with ever escalating input cost primarily contributed by the agricultural input. Because of the involvement of multiple agencies in the supply chain each was adding to its cost without adding any value. This was further aggravated by the poor supply chain management infrastructure resulting into high wastages. As a result, the basic agricultural produce were not available at the right price and at right quality. The difference between the consumer price and farm gate price of fresh products were almost 4.5 to 5 times as against 1.5 times in developed countries. The scenario now is fast changing. Thanks to new investment in infrastructure and systems mostly by the new entrants including players like Reliance, Big Bazar, Subhiksha, Spencer etc. The players like Wal-Mart, Metro, Booker, Tesco will make all the more difference. The fast food restaurants have also played their role to upgrade the supply chain and make the whole chain more efficient. This is a long struggle and those who have ventured in the earlier years like McDonald and Dominos have gone through the difficult times. Today you can see even a new generation including the local fast food chains that have come into play.

Marketers on the other hand are making investments to promote sales through the introduction of new products, by expanding the market and also getting into new segments. If one has looked into the kind of new products that have flooded the market both locally produced as well as through imports it is mind-boggling. I can take many examples but with the limited space available I would like to take the example of few recently launched products. Dalmia Continental Pvt. Ltd has introduced ‘Clausthaler’ non-alcoholic beer – an award-winning brew from Germany. The non-alcoholic beers are of two types. One is just like a soft drink formulated beer like root beer and ginger ale. The other is like normal beer from where alcohol is distilled out. The second type is more preferred as it tastes like a typical beer. Dalmia Continental has introduced the second type. Godrej-Hershey has launched Chocolate milk fortified with six vitamins. Amul has launched a low salt butter. Cadbury has also launched recently a ‘lite’ variant of dairy milk chocolate. The number of new launches are so many that it is difficult for the analyst to keep a track of the same. The reason is same and that is expanding the usage and extending to yet another new segment. The sustained effort of the marketers has also produced results. Processed food has grown at the rate of about 12 per cent in volume terms amongst all FMCG categories.

The market environment has been changing. We all know that alcoholic beverages are not getting any support from the government. In spite of the many restrictive trade practices and controls on sales and marketing and prohibition on liquor advertisements this category is again growing at about 15 per cent in volume terms. Some of the sub –categories like Vodka, gins and wines have grown at a much higher rate. Wine is said to be growing at over 30 per cent in volume terms and is being exported to European countries as well. Has anyone heard of anyone getting recognition or awards in liquor trade before? Now that is happening. Whisky awards, the world’s highest accolade in spirits industry were announced recently at a gala event at ITC Maurya Sheraton Hotel, New Delhi. Mr Vijay Mallya got the lifetime achievement award, Whisky Bar of India 2007 award to Bombay High, Mumbai, Whisky restaurant of India 2007 went to The Zodiac Grill, Mumbai, Whisky hotel of India 2007 went to The Taj Mahal Palace, Mumbai and ITC Maurya, NewDelhi, Innovator of the year went to Moet Hinnessy, Distiller of the year- went to Perod Ricard India Pvt. Ltd. It should be noted that all these awards have gone to players in different categories covering the entire whisky trade to Indian operators only. This has special significance .It means all eyes are on India as far doing business is concerned.

The investment in the processed food industry is going up taking both direct and indirect routes together. Some businesses have gone for dilution of equity to bring in foreign partners, some businesses have made strategic alliances and yet some business got foreign participation through overseas acquisitions. There are investments in infrastructure including rural infrastructures, which will have direct impact on the food industry. In the infrastructure sectors 100 per cent holding is permitted. There are couple of companies cropped up by setting up freight carriers and cold chain and warehousing business. This was a crucial constraint for the business growth earlier. But now things are happening. Food industry in India now can look forward to significant growth in coming years.

 

-- This article was first published in "Processed Food Industry" monthly magazine.

 

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