Cadbury is a lone success where India’s local brands reign
A factory that recently opened in the south of India will churn out 60,000 tonnes of Cadbury’s Dairy Milk chocolate a year. That’s just to start.
By 2020, the US$30 billion Mondelez International, which owns the confectionery brand, aims to produce 250,000 tonnes of the chocolate at the plant in Andhra Pradesh annually and employ 1,600 workers. As its largest factory in the Asia Pacific region, it has been set up with an investment of $190 million and it covers more than 53 hectares.
Mondelez, which also has brands including Oreo biscuits and Trident chewing gum, has been producing food in India for 70 years and already has factories in Himachal Pradesh, Karnataka, Maharashtra and Madhya Pradesh.
“We are bullish about India and see this country as a huge opportunity,” says Maurizio Brusadelli, the president, Asia Pacific, for Mondelez International. “India is a priority market for us. We are investing today and building capacity for tomorrow.”
Mondelez and Nestle are the main multinationals operating in the packaged food space as they strive to compete here, which is dominated by Indians brands including Amul, Britannia, Mother Dairy and Parle.
There is a great deal to be gained for successful companies here, in a country that has a population of more than 1.2 billion. India’s packaged food industry is rapidly growing. The sector is likely to rise to $50bn next year from $32bn last year, according to the Associated Chambers of Commerce and Industry of India (Assocham).
Demand for ready-to-eat food and snacks is surging in India amid factors including the country’s young demographics, rising incomes, the expansion of organised retail and that more women in India are working so households have less time to prepare fresh meals.
“The consumption of packaged food is much higher in the urban areas, especially metros, where life is fast-paced, attracting a lot more companies to launch new types of products and variants,” says D S Rawat, the secretary general of Assocham.
A survey conducted by Assocham revealed that 80 per cent of the demand for packaged food is in urban areas.
Domestic manufacturers are increasing their distribution and penetration into rural India, according to Euromonitor. “Launching smaller packs with lower price points boosted their efforts in this direction in 2015.”
It says that the market managed to grow by 15 per cent last year despite the fact that Nestle’s popular Maggi noodles were temporarily banned in India after the food safety regulators raised concerns over the safety of the ingredients.
Euromonitor says that domestic manufacturers are dominating the packaged food sector, “whereas international players still have to understand the dynamics of the Indian consumer mindset”. Domestic manufacturers are also increasing their range of products, it says.
Amul, a dairy brand based in the small town of Anand in Gujarat, is considered to be one of India’s biggest success stories. It is the brand of Gujarat Co-operative Milk Marketing Federation, which is owned by millions of dairy farmers in Gujarat. Amul is a well-known name and produces butter, processed cheese, ice cream, chocolate and a range of other foods. Amul turned over 230 billion Indian rupees (Dh12.7bn) in the financial year to the end of March, up by 11 per cent on the previous year, and holds the biggest market share in the packaged food sector in India.
Its pricing is attractive and it is quick to compete with any international names that come into the market. For example, when Unilever launched its Magnum brand of ice cream bars covered in Belgian chocolate, Amul responded last year by bringing out a similar product, Epic, which it sells for less than half the price of Magnum.
Subhashis Basu, the business head of dairy products, at Mother Dairy, which has the second biggest market share in the packaged food industry in the country, says that the “Indian packaged food industry has been witnessing a healthy demand” and the “potential is extremely bright”.
He says that this rise has partly been driven by a better distribution network and a growing range of products in the market, along with a demand for hygienically produced and convenient goods.
But Nawal Sharma, the president and head of business transformation at Kwality, a major dairy products company in India, says there “is not a situation of cut-throat competition or bleeding price wars” in India.
“MNCs [multinational corporations] can get into this space and still flourish,” he says. “We would rather invite more players to get into industry. We see a lot of growth for everyone over the next five to ten years.”
In India, the market is very fragmented, with the top seven packaged-food companies only holding a 27 per cent share of the market, data from Euromonitor shows.
He says there is a of lot of scope to launching “new and innovative” goods in the market, such as flavoured milk and yogurts, where the flavours and options are limited compared to other markets.
For example, he says that Kwality has produced a patented reduced-cholesterol ghee, as Indians become conscious of the health impact of food.
“That has been our strategy and our future growth strategy to get into value-added foods,” says Mr Sharma.
Abhimanyu Sofat, a co-founder of AdviseSure, an investment advisory in India, says “the MNCs find it quite tough to be in the mass market” and even for established brands such as Nestle, growth will be limited because of the presence of local players.
This is partly because the majority of Indians feel more affiliation with domestic brands, he says.
Patanjali, a company founded by TV yoga guru Baba Ramdev, has also taken the packaged food market by storm in India, partly because of a shift towards products that perceived to be healthier following the Maggi noodles scandal, Mr Sofat says.
Nestle slipped to seventh place in terms of market share last year, from having the second-largest share after Amul the previous year.
The French company Danone, for example, entered the country in a tie up with India’s Britannia but the companies split in 2009 after a disagreement. Danone operates in India independently, selling yogurt and milk, for example, but Mr Sofat says “they have created some niche but [on a] mass scale they have not been able to make any impact in the dairy industry”.
He says that there are not many companies that can compete with Cadbury’s in the chocolate space, which explains its success in the Indian market.
Indian brands are also often more adept at creating products that appeal to local tastes. Mother Dairy, for instance, last month launched Nolen Gur, a palm jaggery flavoured ice cream, to cater to the palates in the eastern region.
Shivam Gupta, the director of WestCoast Group based in Mumbai, says that sales of its seafood, snacks and frozen vegetable packaged products are growing by 20 per cent annually.
“Superior cold chain technology, growth in e-commerce, convenience, dropping culinary skill sets, busy urban living, increased awareness about the health benefits of frozen foods, which are free from preservatives, are the factors mainly responsible for the growth of our products,” he says.
But there are also hurdles, he says. “The biggest challenge for any frozen-foods company is to ensure that our products remain the freshest fresh right from the point of harvest till it reaches the consumer.”
He says the company has invested in “advanced cold chain and packaging technology” to achieve this.
Follow The National’s Business section on Twitter
Updated: May 7, 2016 04:00 AM