Marketing Challenges in Indian Processed Food Industry

Rajat K. Baisya

marketing challenges in food industryThe success rate of new launches in processed food category in India is one of the lowest. Marketers often face the challenge and end up in failure. But the relentless effort on the part of marketers to create a new success story has never stopped. Because this is how business can survive. One success can take care of many failures. Businesses therefore are struggling to make success stories in their new product launches. The high failure rates in the processed food category have rendered the industry unattractive for investors. Even financial institutions do not like to support the industry by extending loan to new ventures because of their past experiences. Still new projects do come up. Failures do not stop entrepreneurs from setting up new start up ventures.

Challenge from Organized Retailing

The new wave of modern retailing which is now about 4% of the total retail industry on an all India basis and about 12% in south India is expected to improve the success rate of new food products particularly from those launched by small scale industries. The failure rate in SME sectors is still higher because they do not have much marketing money to support the new launches. These modern trade retailers will redefine the rules of the game by introducing private label. The store label brands will pose a big challenge to the food marketers from manufacturing industries. This happened worldwide and will hopefully happen here as well. The SMEs engaged in food products manufacturing will end up only producing for these organized retailers and will not have their own brand. Organized manufacturers have already realized this new challenge and have started thinking about new strategies to be adopted. The private label has a great advantage of cost and only way large scale manufacturers can put up some fight is keeping the price of those national brand which are promoted through advertisements in mass media close to private label brands. This strategy has forced many food manufacturers to go for large-scale outsourcing instead of manufacturing products in-house as producing in-house is a costly proposition for them. Globally, big time retailers like Wal-Mart, Tesco, Carrefour etc have registered sales much higher than many well known FMCG players like Nestle and P&G. These organized retailers therefore, are likely to give a big challenge to the large players and will also provide big opportunity for the small players who can adhere to quality, cost and delivery schedule as dictated by the organized retailers.

Globally, the emergence of private label brands started since 1970 albeit slowly, but when big players started organizing the retail supply chain on a national level first and then internationally, things have changed quite fast. Today organized retail sale is one trillion US dollar worldwide. The share of private labels in Switzerland is 45% and in United States it is 20%. Brand marketing used to be a different ball game when distribution channels were fragmented and the media was consolidated during the major part of the twentieth century but with the rise of giant retailers the game will no longer be same. Look at the range of food brands under private label that Tesco has created. These are :

Tesco Carb Control: A line of low carbohydrate bakery products and ready and frozen meals.

Tesco Free Forum: A range of 125 products for people with food allergies or intolerances. These are gluten and wheat free. Some are even milk free.

Tesco Healthy Eating: Half the fat and a lower calorie intake food varieties

Tesco Organic: A line of organic products

Tesco Serve One: Single serving prepared foods

Tesco Simple Solutions: Prepared convenience foods that require minimum preparations.

Tesco Fair Trade: A range of products from developing countries, particularly the ethnic foods.

A retail chain can support these varieties and range of offering with even low volume because the marketing cost is low. A manufacturer promoted brands through the mass marketing channel cannot have so many variants that a big chain like Tesco can have. And Tesco is arriving here in India.

The other countries, particularly in the developed countries, private label has taken away a large part of the share. India has not yet experienced this shift so far. But the beginning has already been made and the trend is clearly seen in last couple of years. All large national players have created new division to manage the distribution need of the modern trade. This will be a new found challenge for the food brand marketers representing manufacturing organizations in India

Challenge from Low consumption Expenditure on processed food

Food marketers have many other challenges in respect to the Indian market. The processed food market is mainly an urban phenomenon. Here price of convenience cannot be expected to be that high. Consumers prefer fresh and fresh so easily available and it is less costly. Traditional food habits are wide spread and western style products have limited appeal. People still have time to cook food in traditional ways for their family. Here family women take pride and gets satisfaction if she can cook something that her family members like. Food habits changes very slowly. The consumption expenditure in food is low. Besides, out of the total expenditure on food the major chunk is on primary foods and very small amount on processed food. Manufacturers have not been able to create any major value proposition for the consumers of all segments to buy. The products that are difficult to duplicate or to make at home have gained quick acceptance but generic products and western style products have not been accepted so easily. Brand marketers are struggling to make that happen.

Challenge from Complexity of system and trade

The other challenges are posed by the complexity of our system of governance, as well as of trade. Coupled with it we have high taxation and poor infrastructure, which makes the product costlier to market. These issues give additional challenge to the marketers. Our distribution system is costly and inefficient. Involvement of multiple level of distribution makes it more difficult.

Challenge from high cost of processed Food

Although at the farm level we have low price of fresh produce in comparison to the prices prevailing in other countries but when it comes to the factory for processing the prices are high arising out of huge post harvest losses and poor infrastructure and involvement of multiple agencies. Marketers therefore, do not find attractive margins available for brand promotion. The value addition in food thus is very low.

The result of these as we can see that there are very few success stories in processed foods created by the domestic players so far. The creation of new brands in future will become more difficult. The new challenges arising out of customers expectation and growth of private label brands from giant retail stores will be making marketers task all the more difficult. But in ultimate analysis consumers are in to gain from these developments. 

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

 

ALSO READ

1
2
3
4
 

Managing IPR

Managing Intellectual Property

Managing Intellectual Property

“Managing Intellectual Property” is a series of articles on intellectual property rights in the trade related matters. The series covers various dimensions of IPR, pertainign to the food processing industry, in the form of simplified legal text with suitable cases studies. We hope the series will benefit the food processors, policy makers, executives, managers, researchers, traders and other stakeholders in the processed food industry.Read More

Current Topics

Current Topics

‘Current topics’ provides the rapid advances in the food processing sector that have taken place in the recent past. The series is being contributed by Dr. V.H Potty – our editorial consultant and Deputy Director (Rtd), CFTRI. He is the doyen of food processing industry in India. We feel that an intensive review of the major issues concerning food processing industry would be of great value to our readers.

Read More

Recent Development

Recent Development

New developments in the sphere of processed food industry take place every now and then, which results in the overall development of the entire food sector. Dr. Rajat K. Baisya — our editorial consultant, and professor of marketing and strategic management at department of management studies, IIT Delhi — keeps a keen eye on these developments in food processing sector as and when they happen. The series has recently passed its 200 mark in its print version.
Read More

Cold Chain

Cold Chain Management

Keeping in view the importance of freezing and cold chain in food business 'Processed Food Industry' has decided to introduce a new series of article ‘A to Z of Frozen Food Operation’. The series is contributed by O S Gautam — a known food consultant and Director, Delicacy International — is being presented here. We hope our readers will be benefited by his experience and give us their feedback.
Read More

Supply Chain

Supply Chain

“Managing Supply Chain & Marketing of Food Products” The purpose of initiating this series of articles is to discus some important dimensions of food processing industry, which can be of some help for decision makers at various levels in food business. This series looks into macro-economic policy parameters, which affect food consumption and retailing patterns and consumer behaviours. We will also evaluate various micro-level developments in processed-food-industry world and their impact on food business, food retailing and consumer behaviour.
Read More

Events

 
 
anutec-india-2020
Copyright © 2019 All Rights Reserved | Designed & Developed by Netnovaz Web Solutions