Some New Food Ventures Encashing on Huge Opportunity from Global Retail Giant

Rajat K. Baisya

Many local food ventures collapsed because they could not create sufficient local demand to support the investment. These units struggled for existence. They either surviving at subsistence level or even ended up in closure. We have cited many such examples in past in the same series. Institutional funding also, as a result, got blocked creating low prospect category for investors. When domestic market was not growing, players found their fate got sealed as no one ever thought of building capability to market finished product in international trade. The lifting of the trade barrier and related force of globalization have definitely opened up new horizon for some of these capable food ventures. These new generation food processing industries have been able to create some success stories whichstories that  others should try to emulate. They have been able to see new market opportunities beyond the geographical boundaries of our country and were able to make their products acceptable in global market. The volume of business is so high that over fifty percent of the capacity is utilized by one retail chain. That has made their task of marketing much easier and they can now focus and concentrate on improving technology, cost and quality and at the same time will have time and resources to gradually build the domestic market over a longer period of time. And this is what exactly they are doing. We will discuss the cases of a few such ventures.

Capital Foods Ltd, a Mumbai based company having their manufacturing location in Gujarat, has a turnover of Rs. 110 crores but bulk of this sales to the tune of Rs 40 crores comes from their export to retail food giants like Tesco and Target. This company falls into the SME sector producing a wide range of ready-to-eat Chinese, Thai and Mexican foods to the retailers in US and UK. While they started with these products as market existed for those cuisines which gave them a straight entrycuisines, which gave them a straight entry, but now they realized that there is increased familiarity and preference for Indian food as well. Capital foods would have been the case of another failure if they had started focusing on the domestic market for Indian style ready-to-eat food as has been done by Tasty Bites Eatables Ltd. This is a lesson for others in SME sector with limited resources. One needs to flow with the forces of market.

Similarly, Jain Irrigation Systems Ltd manufactures a variety of dehydrated foods including onion and garlic as well as fruit purees and concentrates and they supply to Coca Cola, Nestle, General Mills, Heinz, Unilever, McCormick and Innocent. The company's total export for the year 2006-07 was Rs 130.9 crores. As per the FICCI estimate, the size of the processed food industry is USD 91 billion whereas the exports constitute only USD 17.47 billion. The industry is likely to grow at the rate of 9 percent becoming USD 600 billion in size by the year 2014-15. With global players eying India as a sourcing point this is the time for small companies to forge the right connection. Indian food industry is largely dominated by the small players. Most of these are not able to make any domestic presence worth mentioning. Their struggle thus continued to no end in sight. But now with increasing globalization and integration of markets Indian companies have found new opportunities to tie up with large global players with assured market. There are a few companies as mentioned above who are encashing on these opportunities.

Temptation Foods Ltd is yet another company drawing up strategies to capture this new found opportunity. Temptation Foods exports deep frozen fruits such as mango, papaya, strawberries and frozen vegetables like okra, corn, ginger-garlic cubes, samosas, parathas, . Indian ready-to eat meals are being processed in their plant in Jejuri, near Pune. The company has registered a turnover of Rs 388 crores in the last financial year. Over 90 per cent of this sales has come from the direct and indirect (through merchant exporters) export. In a recent visit to London I have found that Samosas are being served in social functions and parties. Frozen samosas are picked up from retail stores and put in oven before serving. But those samosas, obviously tastes different than the kind of samosas that we eat here. I did not like that taste of samosas that are being sold in UK but that does not matter. The products were made to suit the local demand. Indian companies need to work with the prospective buyers to develop products that meet local taste preference.

Similarly, Saraf Foods, the producer of dried fruits and vegetables as well as herbs mainly export to FMCG giants like Nestle and Unilever and a few retail supermarket stores in UK and US.

Large players, particularly the global food retail giants and food marketers will be selective in terms of ensuring meeting quality, hygiene, safety and GMP standards. The companies here, therefore, have to comply with these requirements. Technology, process and quality assurance practices will have to meet the global standards. Not only the awareness but the implementation of certification standards like HACCP, ISO etc are essential to meet the expectations.

Some players even are making fortunes by supplying the processed foods to the local food marketers. Many, I am sure ,sure, may not have heard of their names. Chatha Foods, operating out of Mohali in Punjab produces frozen processed meats mainly for quick service restaurant chains. They supply to Domino's pizza, Subway and also to many star hotels and restaurants. They also supply ready-to-eat non-vegetarian meals to ITC's Kitchen of India brand.

Saraf Foods has installed Freeze drying technology with latest packaging system in their plant. They are talking to Reliance and ITC to be a part of their supply chain. To test the domestic market they selectively launched in some metro markets their Fairy brand. But still 60 percent of the capacity is dedicated for the export market.

Exporters are obviously also impacted by the exchange rate fluctuation of Rupee against US dollar like other industries which are export oriented. Rupee has hardened by over ten percent against dollar during last ten months and hence those who have signed contracts particularly long term contracts in USD has suffered in terms profitability. This has turned some of these players to focus also in the domestic market.

What we are seeing is that new players who have set up projects in last couple of years have been more active in terms of exploiting the opportunities. They are smarter lot. Where are those old companies who were languishing.languishing? Why oldies are still not waking up?

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




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