MNC food processing companies are only interested in large growth opportunities instead of pursuing any new niche businesses based on local opportunities. By the same token, they are also not interested in taking any local initiatives to make it big by taking that to a global platform. Those initiatives are left to small local entrepreneurs, argues Rajat K. Baisya. Probably they (MNCs) do not want to venture out of their comfort zone, he opines.
All large multinationals food processing companies that are operating in India came long ago with an intention to carry on their normal established business that they had overseas in their home countries to expand the market in India. All of them were seen to have entered the Indian market through the trading route. They were importing the product into India and selling locally. For at least a decade they continued like that to create a market for their product(s) and then decided to set up small manufacturing units to reduce cost and improve the efficiency of the operations.
With higher productivity and lower cost also helped them to increase their profit. Most of these companies had their head of business like the position of MD or CMD were filled by the expats. And if you look at the kind of people who were working in those companies in senior key positions they will be invariably the product of English school or convent educated from upper-middle-class families. They were considered as trusted locals by the expats.
In the course of time, all these foreign food processing companies became very big in their respective categories and also became the market leaders. Thus we see the emergence of companies like Britannia in the biscuit, Nestle in dairy, Cadbury (now Mondelez) in chocolates, Lipton, Brook Bond in tea, coffee, Coca Cola and Pepsi Cola in soft beverages, Horlicks from GSK on health beverages etc. Those who were late entrant they followed the route of acquisition of well-performing Indian companies and most often the local market leader. In those list of foreign companies, we have Heineken and SAB Miller in beer, Diageo in spirit, HUL in food processing and beverages etc.
But one thing is uniformly true that global players with a significant presence in a product category have only pursued their own main line of business.
Another thing was very apparent that we have witnessed that whenever these large multinationals have decided to diversify and were looking at new growth opportunities they were invariably seen as entering into large existing business categories to take away a chunk of the market share from the competition by resorting to product differentiation supported by high pitch advertisement and promotional budget.
Thus we have seen Horlicks and Cadbury’s as well as ITC entering biscuit as new growth categories. Horlicks introduced Horlicks biscuits, ITC Sunfeast biscuits. They were slogging it out and locked themselves on a long drawn fight in the market place. As we have seen ITC got into all large volume food categories including instant noodles etc. We have also seen that some of them made it a success story. For example, Mondelez now a significant player in the biscuit. Orio biscuits is a great success story.
We can draw two conclusions from whatever I have stated so far. One, that MNC food processing companies are only interested in pursuing their own business and brands and make it bigger. Second, MNC food companies are only interested in large growth opportunities instead of pursuing any new niche businesses based on local opportunities. By the same token, they are also not interested in taking any local initiatives to make it big by taking that to a global platform. Those initiatives are left to small local entrepreneurs. And as local start-ups have limited access to resources their endeavours also have not seen to be becoming a big global category.
India made foreign liquor (IMFL) is a big business category which was once controlled by Indian players are now in the hands of global MNCs in the categories. This is a restricted category controlled by regulation on advertisements, promotion, storage, and distribution but is still growing. The reason is understandable. The prices of IMFL are high and beyond the reach of the poor and working-class whose only entertainment is to get a kick and forget about their daily misery and hardships. They illegally brew their own concoction and often unscrupulous people supply illicit and spurious spirit with dire consequences. In the recent past, we have two such major incidents – one in Madhya Pradesh and another in Assam where more than a hundred innocent poor tea garden workers lost their lives.
There the country liquor is available through the registered vendors to cater to the poor working class but those are also out of reach of the poor and therefore, we still witness such havoc once in a while but almost at regular intervals. There is liquor production locally from Mahua flower which grows in Odisha, Madhya Pradesh, Jharkhand, Baster Chattisgarh, Goa and Maharastra and I wonder why state cooperative marketing federations are not producing potable liquor in these states and distributing through their local distribution infrastructure.
I also wonder why there is no organised effort to produce new alcoholic beverages from Mohua by large companies to take the product to other overseas markets. This is a distinct possibility but no organised effort. Why a company like ITC which earns 80% of its profit from cigarette and tobacco business doesn’t even think about such possibilities instead of only pushing new brands in existing large categories like biscuit and noodles. What is the big endeavour on the part of a company like ITC to sell wheat flour (atta) and rice and oil? The answer is also known.
No one wants to venture out of their comfort zone. It takes a long dedicated effort to develop a new category of business out of nothing but if big companies try then the success rate will be higher simply because they have more resources and sustaining power. An alternative to that is the effort that can be triggered by the public and cooperative sector. And that is also missing.
New generation entrepreneurs are seen to be more innovative and willing to try out anything new. Very recently in Bangalore at a wine tasting event hosted by Eleven Thirtyone Restobar, guests were seen to gulp down shots of Mahua, a drink synonymous with country liquor in rural India. This particular flower distilled variety of the spirit was from Goa and is now available on the shelves of premium bars in Karnataka. This is a significant development. Karnataka is a tough market and if the experiment succeeds there will be the popularity of this new indigenous drink and with sustained effort, this can reach other markets and even overseas markets.
Liquor is an easier category to sell. If people like it will move. Our agricultural state marketing federation can learn lessons from this. They could not sell traditional fruit and vegetable products but Mohua liquor will be easier to sell if they can put their act together. The owner of Alcobev company Desmond Nazareth is making an effort to popularize Mohua distilled alcoholic beverages. Hopefully, he succeeds. There are other such local varieties also available in some states like rice beer in Arunachal Pradesh. If Saki can be a popular rice-based alcoholic drink from Japan why not Mohua from India.
The author is the chairman of Strategic Consulting Group and served as Professor and Head of the Department of Management Studies, IIT Delhi.