Chapter - III

The Growth & Development

of convenience food in India

CHAPTER III

Growth and Development of Processed Convenience Food in India

The growth and development of food processing industry in India is been

described in this Chapter. The policies framed by the Indian Government support

the development and growth of convenience food retailing in India.

History of Food Processing Industry in India

In Indian processed food industry in pre and immediate post independence

era, there were local small entrepreneurs producing only traditional food items and

there were couple of trading companies dealing with imported foods. The imported

food volumes were so low that most of these organizations either have disappeared

in later years or a few of them gradually established local companies. The others

who have done trading in the initial years, later on formed local company and

gradually established production.

Food processing takes back to the pre-historic ages when crude processing

incorporated slaughtering, fermenting, sun drying, preserving with salt and various

types of cooking such as roasting, smoking, steaming, and oven baking. Salt-

preservation was especially common for foods that constituted warrior and sailors’

diets until the introduction of canning methods. These crude processing techniques

remained essentially the same until the advent of the industrial evolution. Research

was limited to quality and process standardization of the traditional products.

The traditional food sector always remained in the hands of small

entrepreneurs and it was fragmented due to absence of resources and so the brands

were limited to local market. In the post independence era, no big Indian business

house got involved in food business. The involvement of Tata group marketing OK

47

brands was the brand started near Kolkata and Lucknow. In the Sixties, there was

an emergence of cooperatives and also government owned food processing plant.

Only dairy sector was the first in this cooperative movement, Amul is a success

story in this cooperative sector. Other cooperatives did not show good performance

for a long time. As the private players moved in, the cooperative dairies in most of

the states failed although they still exist. The local traditional products did not

survive till the beginning of Seventies then a few new generation food projects

were set up. The food research institutions always worked for the small scale

manufacturers who have limited resources and therefore majority of funding for

research in food industry had to come from government agencies and research was

limited to quality and process standardization of the traditional products.

In the 20th century, after the World War II, the space race and the rising

consumer society in developed countries including the United States contributed to

the growth of food processing with much advanced technology as spray drying,

juice concentrates, freeze drying, introduction of artificial sweeteners, colorants,

preservatives such as sodium benzoate and saccharine. In the late 20 century

products such as dried instant soups, reconstituted fruits and juices and self cooking

meals were developed. It has witnessed a rise in the pursuit of convenience food

processors were especially marketed to middle-class working women. Frozen foods

often credited to Clarence Birdseye found their success in sale of juice

concentrates. Processors utilized the perceived valuable time to appeal the post war

population and this same appeal, contributes to the success of processed

convenience foods today1.

Performance of Indian Food Industry

The food processing industry is ranked fifth among the other industries in

India. Nearly, one third of the entire Indian food market share comprises of

processed food. With policy measures from the government, the food processing

48

Industry accounts for 13 per cent of the country's exports. The industry's size is

estimated at US $ 70 billion in 2006, including US $ 22 billion of value added

products. Indians spend half of their household expenditure on food items at

present. The industry creates 9 million employment opportunities from the current

1.6 million people with a expected investment of Rs. 1,50,000 crore in the coming

10 years.

With over 1 billion population and 350 million urban middle class and

changing food habits, the processed food market is promising a huge potential to be

tapped. A joint study by CII and AC Nielsen (market research firm), reported that

demand drivers for processed food bring forth the changing Indian meal patterns:

working lunch seems to be replacing conventional meals in the day, with a need for

no fuss packaging.

Indian food processing industry accounts for merely two per cent of the total

food production in India, which is very low as compared to the western countries.

Considering the market forces such as rising income level, change in consumer

behavior and rapid economic growth. It is expected that the growth rate would 10

per cent in 2010 and 25 per cent in 2020. In the food processing sector, dairy

products (includes milk, ethnic sweets and more items) and packed food provides

immense opportunities for investment.

The Indian food processing industry is basically export oriented to the

economic growth. Indian processed food industry provides competitive advantages

over other countries due to cheap workforce, government initiatives (tax holidays)

and the availability of raw materials. Indian food processing level as compared to

the countries like USA, France and Malaysia continues to remain very low.

However, with the emerging positive market forces, it is set to boom. The major

players currently operating in Indian food industry are Dabur Foods, Godrej

Industries, Hindustan Lever limited, Britannia Industries Limited , ITC Limited are

the domestic players and some Foreign players like Nestle, Cadbury2.

49

The size of Food processing industry

The size of the Food and Beverages Industry is estimated to be Rs.3584

billion. India is among the world's major producer of food and it produces over 600

million tonnes of food products every year and has huge potential in agricultural

sector which contributes around 22 per cent of India's Gross Domestic Product.

India's food consumption market is expanding rapidly to attract global food and

drink giants. Rising per capita income, changing life styles and growing younger

population with preference for convenience food have motivated to growth.

Experts recommend that the next sunrise industry for India is food industry

which has already surpassed both Information Technology and Pharmaceutics.

Information technology and Pharmaceuticals has given an output of Rs.30,000

crores and Rs. 15,000 crores respectively during 1993 to 2000 while food

manufacturing recorded an output addition of Rs.90,000 crores, in the same period

which is double of the two industries. The Food Processing Industry sector in India

has been gives high priority by the Government of India, with a number of fiscal

relief and incentives to encourage commercialization and value addition to the

agricultural production.

Indian food processing industry is poised for further growth in view of the

liberal policy measures and government's commitment for reforms and

development of food and agro processing industries. This opens up huge

opportunities for large investments in food and food processing industries in

different fields including up gradation of technologies and improvement of skills

with installation of modem machinery and equipment, especially in the areas of

Canning, Forage crops, Value added processing. The opportunities of investment

lie in various stages like packaging, preservation of food with suitable refrigeration

and thermo processing, quality control and also in creating a good marketing and

distribution infrastructure and an efficient network of cold chain management

system.

50

Health food and its supplements, Branded Convenience Food is rapidly

raising segments of this industry which is gaining vast popularity with the changing

life styles of the consumers. Development of rural infrastructure, rural extension

services, agro-based and food processing industries have been given enough

priority for generating employment and reducing poverty and raising the income

level of the farmers and rural masses by the Government. The present Government

also plans to continue the process further with a package of incentives for rapid

progress and development of rural India.

The food processing industry is been divided into organized and

unorganized sectors .The Segmentation is been explained through this exhibit:

Exhibit 3.1

Market Segmentation of the Food Processing Industry

The unorganized, small players account for more than 75percent of the

industry output in volume terms and SOpercent in value terms. There are very few

large Indian Food Brands with global presence.

Unorganisedfood

processing unit

25? o-Orgmiised food .processineumt

Source: Investment opportunities in India for Foreign Direct Investment.

51

There is strong preference for raw and semi-processed foods in most parts of

the country. The tremendous potential for growth of the industry is also reflected in

the number of foreign investment proposals received for the various sub-sectors of

the industry. Since the liberalization in 1991 till January 2004 proposals for

projects of over Rs.87715 crores have been proposed in various segments of the

food and agro-processing industry including Rs 33574 crores for food processing,

Rs. 33818 for sugar and Rs. 20323 crores for vegetable oil and Vanaspathi.

Besides, the Government has also approved proposals for joint ventures, foreign

collaboration, industrial licenses and 100 per cent export oriented units envisaging

an investment of about Rs.20,000 crores. Out of this, foreign investment is of

Rs.9620 crore, which is 3.3 of total Foreign Direct Investment made in India.

Liberalization of food sector started since 1991, removal of price controls,

renovation of small scale industry, reduction in import tariffs, fiscal incentives for

encouraging investment in the sector under the liberalized policy environment of

the government have spurred growth in this sector. The Government has provided

many liberal incentives to encourage the Food processing industry. For example,

ITC has more than 50 packaged branded food products under Kitchens of India

which provide varieties of ready to eat food is gaining popularity in the market. The

sector is witnessing large-scale transformation, huge advertisement spending, and

focus on improving the distribution network to make strong presence in the Indian

market. Every player is busy in the race by expanding their product range.

Liberal policy measures of the government sector gives specific concessions

to uplift the economic growth. A package of fiscal incentives provided by various

State governments like Himachal Pradesh, Uttranchal, has encouraged companies

to set up manufacturing facilities in these regions. The excise exemption for 10

years and income tax exemption for 5 years for units located in backward regions

under section 80A have encouraged many companies to set up new units and

develop the society.

52

Classification of Food Processing Industry

The following exhibit clearly explains the classification of food processing

industry in India. This industry is divided into eleven categories. They are listed

below:

Exhibit 3.2

Segment wise Classification of Food Processed Industry

The above flow chart is the segment classification of the food processing

industry in India. Indian food processing industry is being developed one which

tends to the following units are highlighted in this research. Semi processed /

cooked / Ready to Eat units and Culinary product and snack food industry has

playing a major role which have concentrated in this study.

53

(i) Semi-Processed / Cooked / Ready To Eat

The market for semi-processed/ cooked and ready to eat foods is estimated

to be of around Rs. 85 billion in 2005-06 and is rising rapidly with a growth rate of

20 per cent. Growth in ready to Eat dishes has been one of the most noticeable

trends in the recent years. The market has been also equally respective to

generation of sufficient demand, especially about double income working couples,

single technologies in business travel in India and students. With the changing life

styles of the Indian middle class and the busy schedules of both the men and

women in the family the demand for semi-processed cooked / ready to eat food is

rising steadily as hired domestic help is also becoming costlier.

For instance, HLL has entered the ready to eat segment through Indus

Valley rice meals in seven flavors. MTR Foods has also launched a whole range of

rice meals and other curries. Satnam Overseas has also entered this growing market

with its Kohinoor brands of rice meals and curries. ITC’s more than 50 packaged

branded food products under Kitchens of India and Aaashirvaad brands with

different varieties of ready to eat / cooked food is gaining popularity in the market.

Pizza Comer has also expanded its outlets rapidly this year. Global franchise

Architects (GFA) currently has 37 Pizza Comer outlets across India.

(ii) Culinary products & Snack food

The total production of culinary products and snack food is estimated to be

around Rs. 1850 crore in 2005-06 and is growing at a moderate rate of 8 per cent.

The culinary products includes mainly wheat based products comprising of

noodles, vermicelli, macaroni and spaghetti are gaining popularity. HLL (Kissan)

and Nestle (Maggi) dominate this segment, as both have large product portfolios.

Heinz and Top Ramen are also knocking at the door. Indian snack food market has

reached a value of Rs. 1530 crore. It is one of the largest snack markets in the

world. Potato chips are by far the largest product category within snacks, with

85per cent of the total market share. Snack nuts and savory snacks also add to the

market. At present, popcorn is yet to break into the Indian market.

54

Convenience Food - An Emerging Trend

Convenience food are tertiary processed foods are foods which are designed

to save consumers time in the kitchen, reduce costs due to spoilage, and reduce

costs using economies of scale. They were develop specifically to preserve the over

supply of agricultural product available at the time of harvest in order to stabilize

the food markets in developed countries. Convenience foods - the choice of the

day can be designed to suit all segments of population including army, airways,

railways and even patients with suitable supplements for their health. The demand

for convenience foods is growing at a faster pace due to changes in social and

economical patterns, as well as increase in urbanization, buying power and

awareness about health foods, changes in meal pattern and existing food habit,

desire to taste new products.

The single most important development in the evolution of convenience

foods happened in 18th century, when Nicholas Appert invented the process of

canning. With the introduction of canning, consumers have a variety of foods such

as fruits, vegetables, meat, fish and soups all year round and at reasonable prices.

Canned foods played a significant role in feeding the army of Napoleonic war,

World War I and II and Gulf war in 1991. Hence canned foods can truly be called

as first mass produced convenience foods 3.

The convenience foods consist of heterogeneous group of foods which vary

in size, shape, method of preparation and processing, even with respect to their

functions in the diet. This literally ranges from simple fried and roasted nuts to

ready mixes, canned and frozen foods, and sophisticated warm and serve type

dinners. Convenience foods can be broadly defined as “Foods that have undergone

major processing by the manufacturer such that they require little or no secondary

processing and cooking before consumption”. This means, apart form warming,

thawing, cooking, frying, diluting and reconstitution, the food is ready-to-eat.

55

A food may be classified as convenience food if it meets the criteria like:

• The food must have undergone considerable amount of food preparation by

the manufacturer before it reaches the retailer.

• It must require minimal time for cooking or processing of food items.

• Prepared items should contain the nutritional quality

Classification of Convenience Foods

Convenience foods can be classified into 3 major categories.

1. Ready-to-Eat (RTE): Ready to eat foods which can be directly consumed from

the package with or without warming/ thawing and without preparation. Few of

them include - a) dairy snacks b) dairy sweets c) biscuits, d) breads, e) snacks

f) retort processed foods and g) frozen foods

2. Ready-to-Vse (RTU): Ready to use foods which need some preparations like

cooking, frying, reconstitution, dilution before consumption. These foods include:

a) Masalas b) Fresh cut vegetables which are sorted, washed and cut into slices,

cubes, shreds and modified are atmospherically packed, c) Ready-to-Cook (RTC)

d) Ready-to-Fry (RTF) e) Ready-to-Reconstitute (RTR) and f) breakfast cereals

which need some preparations like addition of milk, fruits if desired before

consumption.

3. Ready to Drink /Serve: Ready to Drink (RTD) foods are which can be directly

consumed from the container. And have shelf life of six months that is RTD fruit

based milk drinks form mango, apple, strawberry and many more fruits. Ready-to-

Serve (RTS) which needs some preparations like dilution, reconstitution before

consumption. These include fruit juice concentrate, in different flavors like

Tropicana, Spicy Tomato Rasam Style soup, Chicken Soup and many more items.

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Table No 3.1

Classification of convenience foodsREADY-TO-EAT

FOODSREADY -TO -USE

FOODS READY -TO - DRINK/ SERVE

a. Dairy- cheese- cheese spreads- butter spreads

a. Masalas- butter chicken mix- Garam masalas- ginger/garlic paste

a Ready to Drink(Fruit based milk drinks from)- Mango- Apple- Strawberry etc,

b.Dairy sweets- Gulabjamuns- Rasogollas- Peda- Burfi- Sohan papdi- Sohan halwa

b. Fresh Cut Vegetables- carrots- potato -cauliflower- radish- beans -cabbage

b. Ready to serve(Fruit juice concentrate in different flavors like)-Tropicana-Spicy Tomato Rasam -Style soup -Chicken Soup etc.-Instant soup powder-Instant juice powdered like Rasana

c. Biscuits c. Ready - to Cook -Noodles-Instant rava iddli mix

d. Breads d. Ready-to-Fry- papads- Color gold fingers- wagers-chicken samosa etc,

e.Snacks- Chips- Wafers

e. Ready to Reconstitute- Khoa powder- Kulfi mix powder- Instant ice-cream mix- Instant Gulab Jamun mix etc

/ RetortProcessed Food- Paneer curries- Dal fries

f Breakfast Cereals- Com flakes- Strawberry corn flakes- Wheat flakes- Honey crunch

g. Frozen Foods- Ice cream- dosa- Idli- chicken- Kabab- Pickles

-

57

Processed convenience food consumption pattern in India

India is one of the world’s top producers of food. It is first in milk and cereal

production, and second in fruit and vegetables. With an estimated food production

of about 600 million tonnes of food and a US $ 70 billion industry including US $

22 billion of value added products, India is stated to become a global outsourcing

hub. Compared to clothing, transportation, communication, medical care, and

education, an average Indian household is reported to be spending 48 per cent of

their expenditure on food items of which 5per cent on branded items.

The size of the semi processed and Ready To Eat food industry is estimated

to be US $ 1 billion which is growing about at 20per cent per year Food processing

industry in India is identified as a sun-rising industry due to its enormous input

potential and its significance in the country’s development as it promotes vital

linkages and synergies between the two pillars of economy namely agriculture and

industry.

As per capita income increases from US $ 1000 - US$5000, there is a

substantial reduction in the share of expenditure towards food articles like cereals,

oils and fats, fruits and vegetables etc. from 66per cent to 1 lper cent. The share of

the expenditure devoted for basic articles of food like dairy, meat, fish and egg

increases tremendously from 17 to 68per cent. At the same time the share of the

expenditure devoted to luxury articles of food like processed drinks, snacks,

processed foods, eating outs increased from 17per cent to 34per cent at the per

capita income of US $ 25,000.

Today the food processing industry is growing rapidly driven by changing

consumer trends. Over 266 milk product units, 418 fish processing units, 5,198 fruit

and vegetable processing units, 171 meat processing units, 609 sweetened and soft

drink units, 820 flour mills and many other food processing units are existing in the

organized sector of this country. With changes in the socio-economic and other

58

factors the eating pattern in rural areas is following that in the urban areas. Over the

period of 1970 - 1999, the share of the expenditure of cereals has fallen form 54per

cent to 37per cent, while the share on livestock products has increased form 15per

cent to 21 per cent. This consumption basket is more or less in line with that what is

happening in the urban consumption pattern in 1970’s. In the year 1999, the urban

consumption has shifted more decisively in flavor of livestock products with a

share of 25per cent as against 20per cent previously. There is a dramatic reduction

in the share of expenditure on cereals from 36per cent to 26per cent. This shift in

the consumption is reflected in shift in the production as well.

Change in Demographic Profile of Indian consumer

A detailed review of age composition is helpful in determining the

proportion of labour force in the total population.

Table No 3.2

Change of the Demographic Profile in India

1997 2025

Age groupPopulation in

millions (per cent)Age group

Population in

millions (per cent)

0-19 474 (49per cent) 0-19 467 (33per cent)

20-60 425 (44per cent) 20-60 777 (55per cent)

60+ 68 (7per cent) 60+ 169 (12per cent)

Total 967 million Total 1412 million

Source: US Census Bureau, International database, 2004

In the year 1997, the total population of India was 967 million, of which 0 -

19 year age group constituted 49per cent 20 - 60 years group - 44per cent and 60+

years constituted 7per cent. Table 6 shows that by the years 2025 the projected total

population of India will be 1412 million of which 0-19 years age group will be

33per cent, 20 - 60 years age group will be 55per cent and 60+ years group will be

12per cent. The age groups of 0-19 and 60+ years are considered as no earning

59 A fc*

groups and the working age of the population is considered as 20-60 years. So the

target group for convenience foods is focused on the 20 - 60 years age group

because of their buying power. In recent years, the increase in the number of

working women, changing lifestyles, increase in nuclear double income families,

influence of media, increase in foreign travel and integration of ethnic foods into

the local food habits and desire for quality foods have resulted in increased need for

convenience foods.

Change in Income Level of Indian Consumer

Based on income the Indian households are divided into 5 categories - the

destitute who are having an annual income of less than US $ 1,400 @ PPP level,

the Aspirants with an annual income of US $ 1,400-2,000, the Climbers are middle

class earning group at an annual income of US $ 2,000-4,000, and the Consuming

Class that is upper middle class earning US $ 4000 - 18,000, and the very rich with

more than US $ 18,000 annual income.

Table No 3.3

Income of the Indian Households

Income Class1995 - 96 2001-02 2006 - 07

House holds (millions)

Population(millions)

House holds (millions)

Population(millions)

House holds (millions)

Population(millions)

Verv rich > US $18,000* 1.2 7 2.6 15 5.2 30

Consuming class $4,000-$18,000* 32.5 186 46.4 265 75.5 432

Climbers US $ 2,000 - 4,000* 54.1 312.2 74.4 429 81.7 472

Aspirants US $ 1,400-2,000 * 44.0 253.9 33.1 192 20.2 117

Destitutes US $< 1,400 33.0 190.4 24.1 140 16.5 95

* Annual Income at PPP (purchasing Power Parity) levelsSource: Mckinsey report.

60

The above table shows that the number of destitute has significantly reduced

in 2001-02 compared to 1995-96. It is noteworthy that the population of destitute in

2006-07 will reduce drastically and more number of people will reach higher social

cadres in terms of their income from aspirants to climbers and consuming class.

The increase in climbing and consuming class is bound to increase the demand for

convenience foods.

Innovation and Extension

The relationship between degrees of product/service innovation is to the

extent of production efficiency. The product/service innovation is divided into 3

levels that is low, medium and high; similarly the production efficiency is divided

into low, medium and high levels. Those companies which have not undertaken

much product innovation usually go in for vertical integration because they find it

difficult to survive on their own.

Today people prefer a pleasant shopping environment, convenience of one

stop shopping with wider product portfolio, speed and efficiency. Organised

retailers such as super markets are increasing and their efficiency lies in medium

level. The production efficiency as well as product innovation of fruits and

vegetables lies in low level, whereas the production efficiency of branded

convenience foods lies in the low level but their product innovation has just entered

into medium level because they are doing some fortifications of their products with

health supplements. On the other hand firms which have gone into product

innovation have suffered in production efficiency because their major funds /

resources go into product innovation rather than enhancing the production

innovation and so have the RTU and beverage companies.

MTR and ITC have brought about revolution in product innovation but this

has been at the cost of efficiency because they are new entrants. While AMUL has

taken the integration route MNC dairies have been forces to innovate in dairy

61

products in order to survive the onslaught of AMUL which is a large player. Hence

the future in the food industry is for emerging innovators who will innovate in

order to gain more efficiency in the market and thereby a market edge.

Growth in Processed Convenience Food

The food processing industry is coming of age it is ranked fifth among

industries of India. Nearly, one third of the entire Indian food market share

comprises of processed food. With policy measures from the government, the food

processing Industry accounts for 13 per cent of the country's exports. The industries

size is estimated at US $ 70 billion; including US $ 22 billion of value added

products. Indians spend half of their household expenditure on food items at

present. The industry would create 9 million employment opportunities from the

current 1.6 m and investment of Rs 1,50,000 crore in the coming 10 years. With

over 1 billion population and 350 million strong urban middle class and changing

food habits, the processed food market is promising a huge potential to be tapped.

A joint study made by CII and AC Nielsen (market research firm), to understand

demand drivers for processed food brings forth the changing Indian meal patterns:

Working lunch seems to be replacing conventional meals in the day, with a need

for no fuss packaging.

It is also generally observed fact that, Indians are willing to spend on global

cuisines. Multi-cuisine restaurants are mushrooming even in small cities and towns.

This reasons the array of foreign investors coming to India which is driving the

growth of the industry. Like investments to offer Indians the real taste of Italian

pasta; conglomerates from Emilia Romagina are looking at major Indian cities to

set up Italian food processing plants. Most recent one was the proposal from West

Midlands of UK to the Ministry of Food Processing Industries of India. Other

foreign food companies like McDonald's, Pizza Hut, Cadbury's, Tropicana, Pepsi,

Coke, HLL, Nestle, etc. are already earning huge returns by processing Indian food

for domestic and global markets.

62

Over the past decade money spent by Indians on ready to eat food outside

home, has doubled. While 5 billion USD is spend on ready to eat food this year and

research estimates it to double up in over five years. In 2007, the growth in sales

(domestic and export) of processed food is more than 150 per cent; most

remarkable are the two sectors which showed remarkable growth in sales.

Processed Poultry's sales grew by 64%, and spirits and beverages by 75%. Food

process outsourcing is presenting good prospects in multi cuisine hotels and

restaurants abroad for processed or semi-processed Indian seafood, dairy and

Indian curries. Besides foreign Investors, food processing sector is a major

attraction for Indian corporate houses to invest. Reliance, Godrej, Bharti, ITC,

Hero, Ballarpur Industries, DSCL, Tata and Mahindra & Mahindra are prominent

corporate houses are with end-to-end integrated operations in the food chain.

Tapping the industries export potential is one of the major concerns.

Presently, current exports of Indian processed food are worth Rs. 2500 billion.

Agri- Export Zones (AEZs) are earmarked with nearness to highways, airports and

marketing centers from the areas of food processing. The Policy urges private

companies to grow process able varieties under contract farming. Under the AEZ

scheme, state governments and private firms are entitled privileges of Special

Economic Zones, like tax holidays up to 10 years and duty free imports of capital-

goods to set up processing units.

To provide financial credit without any bottlenecks NABARD in the present

plan is given with a corpus of Rs. 1100 million in single window clearing. This

loan is for setting up new unit or to modernize an existing food processing units.

Further, the government will give 25 % subsidies for Greenfield projects up to the

corpus of Rs 100 crore for Mega Food Parks and up to Rs. 105 crore for food.

With the changing socio-economic factors, the demand for convenience

foods is increasing steadily. India being one of the largest food producers in the

63

world is stated to become a global hub for production of convenience food.

Therefore in India the food processing is identified as sun-rise industry. The de­

regularization and liberalization of Indian economy has boosted the food processing

industry which is mainly engaged in production of convenience foods.

Understanding the scope and opportunities in convenience foods, more and more

industries are venturing into the food industry. Today more than 30 companies

including a few MNC are processing and marketing convenience foods in the

country4.

Convenience, variety and health issues are key drivers for quality of

packaged food. With clear demand in the future if India can harness its production

to the quality its dream to become the world’s food basket is sure to come true.

Government Policy and Incentives

The government of India has identified the food processing industry sector

as a high priority area. It has given a number of fiscal relief and incentives to

encourage commercialization and value addition to agricultural produce. The

turnover of the total food market is approximately US $69.4 billion out of which

value-added food products comprise US $ 22.2 billion5.

The liberalization of food processing industry proposals projects of over US

$13.4 billion have been approved in various segments of the food and agro­

processing industry. Besides this, the Government has also approved proposals for

joint ventures; foreign collaboration, industrial licenses and lOOper cent export

oriented units envisaging an investment of US $ 4.80 billion during the same

period. Out of this, foreign investment is over US $ 18.2 billion. The government

has created a separate window with a corpus of US $ 223 million for "refinancing

loans to the sector, especially for agro-processing infrastructure and market

development".

64

Indian government is also considering investment of US $ 22.97million in at

least 10 mega food parks in the country. The move is besides working towards

offering lOOper cent foreign direct investment and income-tax benefits to the

sector. According to Indian Credit Rating Agency (ICRA), the processed food

market accounts for 32per cent of the total food market.

The organized and unorganized industry in India is estimated at US $102

billion. CII wants its proposals incorporated in the 11th Plan which includes

providing new broadband category definitions to bring in uniformity in taxation

and flexibility in manufacturing. The idea is to change the present narrow product-

specific definitions to an all-encompassing one that would even include packaging

in the policy for food processing.

The Associated Chambers of Commerce & Industry of India (ASSOCHAM)

has sought a 10 year tax holiday for food parks and integrated food zones and also

urged the government to provide exemption of income from grading of agriculture

and farm produce, cold storage, processing of fruit and vegetables for a period,

beginning April 2007 until March 2012.

Policy Initiatives in the Food Processing sector in general

• Food processing industry is declared as a priority area.

• Almost entire sector is de-licensed.

• Automatic approvals for foreign investment up to 100 per cent, except some

products like alcoholic beverages and also technology transfer.

• Zero duty import of capital goods and raw material for 100 percent export

oriented units.

• Tax exemption on agro-processing units and full exemption of excise duty

on dairy machines.

• Agro based 100 per cent export oriented units are allowed sale up to 50 per

cent in domestic tariff area.

• Export earnings are exempted from corporate tax.

65

• All processed fruits and vegetables products exempted from Central Excise

Duty.

• Government grant given for setting up of common facilities in Agro Food

Park.

• Full duty exemption on all imports for units in Export Processing Zones.

• Use of foreign brand name is now freely permitted.

• Income Tax exemption for 5 years for new units only in fruits and vegetable

processing industry only.

Policy Initiated For Branded Convenience Food Sector

India's middle class segment continues to hold the key to success of the

processed convenience food market in India. Of the country’s total population of

one billion, the middle class segment accounts for about 350-370 million. Though a

majority of families in this segment have non-working women or cannot afford

hired domestic help, they prefer to prepare food of their taste in their own kitchens.

But the profile of the middle class is changing steadily as hired domestic help is

becoming costlier. This is conducive to an expansion in demand for ready to eat

Indian-style foods. As about lOper cent of output is processed and consumed in

packaged form, there is a huge potential for expansion of the food processing

industry. In view of the tremendous growth potential of this segment many MNCs

as well as domestic players have made an aggressive entry in the sector, betting

large amount of money. For instance, companies like Nestle after achieving growth

in the key processed food segment are now reaching lower price points to make the

products more affordable to a bigger consumer class. With changes in eating habits

and the increased affordability of the growing middle income group of Indian

population, the market for branded foods is growing at a healthy 10-15 percent.

In the basic food segment there is dominance of the regional unorganized

sector. This is some extent due to government policies of the past, wherein, many

segments were reserved for the small-scale industry. However, the segments, which

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are dominated by the unorganized sector, have the potential to grow faster in the

years to come. The MNC food chains are operating in the big cities and expanding

their network in cities and small towns with variety of cooked, ready to eat food

and drinks. The process of setting up of Food Parks in various key locations of the

country with the involvement of the various state governments and other allied

institutions have been initiated. The ministry of Food Processing Industries has

announced the setting up of 500 such parks within the 10th Five year plan across

each parliamentary constituency.

Tax Exemption in 2006 -07

• The exemption on Milk and Milk products, fruits and vegetable products,

edible oils etc that already exists at the zero rate, is to continue.

• The Excise Duty on all Value Added food products like Nutritional and

health foods, confectionary, innovative Indian ethnic products, high value

Ready to Cook /serve products to be brought down to a maximum of

8percent from 16 percent.

• Excise on all Machineries used for the processed food industry should be

lowered to a maximum of 8per cent.

• Ice -creams and Non-alcoholic beverages dispensed by vending machines

are exempt from excise duty, while other beverages like chocolate drinks,

health drinks which are dispensed by vending machines attract 16per cent.

• The packaging cost component in the food products is very high amounting

to almost 40per cent-60per cent of the cost depending on the size of the

product .The excise duty on packaging materials and packaging machineries

used for the processed food industry should come down to 8per cent.

Packaging material for match sticks is exempted from excise duty.

• The Sales Tax or VAT rates for all machinery used should be lowered to the

concessional rate of 4per cent.

• CST at 4 per cent is a big obstacle in creating one single Indian Market and

its suggested that the CST be phased out urgently.

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The following table shows the strength, weakness, opportunity and threats

which is prevailed in Food processing industry.

Table No 3.4

SWOT of Convenience Food Processing Industry

Strength Weakness

• Leading multinationals from the US and

Europe have already established food

processing ventures in India including Pepsi

Coca Cola, Pillsbury, Conagra, Unilever,

Cadbury, Nestle, and Kellogg’s.

• Frozen foods and other ready -to-eat

processed foods are appearing in the market

• Private supermarkets growing in number

& popularity offering many new products

• New government policy allowing 390

agricultural imports into India previously

subject to licensing requirements (effectively

banning their import).

• The recent policy packages announced

by the new government for farmers for

raising rural income are bound to stimulate

growth further.

With the changing life styles of the

consumers and rising disposable income of

the growing middle-income group. Branded

Food health: food and Convenient Food are

rapidly raising segments of this industry

which are gaining vast popularity. The

market for branded foods is growing at a

healthy 10%-15%.

• Absence of a strong and

dependable cold chain system. It

leads to 30 percent of farm produce

being wasted every year only

because there is no adequate

storage, transportation, cold chain

facilities and other infrastructure

supports.

• Harmonization of multiple food

laws is an urgent necessity. It has

been observed that there are 13

laws enforced by 9 Ministries.

There is a need for integrating into

one common food law.

• Food standards are overlapping

and contradictory.

• There is multiplicity of taxes,

local taxes and levies charged on

different commodities belonging to

food and beverages industries.

• Higher cost of raw materials

and packing materials put pressure

on margins.

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Opportunity Threats

• The next sunrise industry for India is

going to be food. In terms of total output

addition, food has surpassed IT and Parma

• India's middle class segment will continue

to hold the key to success of the processed

food market in India. The profile of the

middle class is changing steadily as hired

domestic help is becoming costlier.

• Indian food and beverage companies are

making a beeline for regional overseas

markets like Bangladesh, Pakistan, Nepal,

Middle East and CIS countries because of

similar lifestyles and consumption habits.

Godrej Consumer, Marico, Dabur are among

the companies

• Lower overheads due to limited local

area, family management, focused product

lines and less expenditure on marketing help

the unorganized sector to grow.

• The Food and beverages sector is

witnessing recently large-scale

transformation, huge advertisement

spending, awareness campaign about the

products and brands, distribution of free

samples with the focus on improving the

distribution network to make strong

presence in the Indian market.

• Indian market still closed to many

high value and packaged products

• Non-tariff barriers to trade such as

unrealistically high quality standards

for imported products are on the rise.

• Private supermarkets viewed as

expensive and attract only higher-

middle and upper class consumers.

• Importers and retailers lack

knowledge and training in

purchasing, handling, and

merchandising of US products.

• The majority of Indians cannot

afford imported foods. The number

one purchasing characteristics

consumers look for price, not brand

or product origin.

• Less than 20 percent of South

Indian women have jobs. There is

little perceived need for

convenience of foods

• American foods/brands have little

presence in the Indian market place.

Local consumers have limited

exposure to American foods and

tastes.

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•Key factors to success in distribution (in • Less than 25 percent of the Urban

rural markets) and advertising (in urban South Indian population of owns a

markets') innovation and launching of new refrigerator. Even fewer own/

brands are being adopted by the companies freezers.

to grab the market. • South Indians have a strong

•Big companies have started sourcing their preference for freshly prepared

products from local manufacturers as cost foods.

saving measures and to enter the mass • There is limited infrastructure forconsumer segment. distribution and/or sales of chilled

• The focus on urban markets has also

contributed significantly to the growth of the

convenience industry.

• Semi-processed foods/ Cooked/ Ready to

eat foods sector is growing by 20per cent

due to rising demand.

and frozen foods.

Source: Annual Report 2006, MEPI Structure and activities.

Retailing in India: Emerging Trends

India is known as the ‘land of retail out lets’ due to the presence of largest

number of retail out lets in the world, though most of these are small out lets.

Traditionally, it is family’s livelihood, with the shop in the front and house at the

back. The food retail sector in India is largely unorganized mainly because it has

not been given the status of an industry in the country. As a result, nobody

perceived it to be an Industry or a sector where large industrial corporate needed to

enter or even explore. There are 12 million retail outlets in India of which 60%

primarily sell food items. These are mostly neighborhood grocery stores. The

traditional formats still dominate and account for 98 per cent of retail.

Government Policy on Food retailing India: Although 100% FDI in retailing

is not allowed, foreign retailers can operate in India through joint ventures, where

the Indian partner is an export house, franchising/ Local manufacturing / Source

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from small scale sector or cash and carry operations. The McKinsey Report states

that FDI will help the retail business to grow from $ 200 billion $460 to $470

billion by 2010. There are several benefits of FDI; It would improve competition,

develop market, increase the level of exports due to involvement of major players

raise investment in food processing sector, improve life style, provide more product

choice and new product categories which increase the purchase capacity of

consumers (Anon, 2006c).

The benefits of the retail revolution are multifold. It is expected to create

additional 8 million direct employments apart from indirect employment. Local

sourcing for retailing and export will benefit the farmers immensely. Factors such

as increasing, personal disposable income, increasing urbanization, need for

convenience, lack of time for cooking, increasing trend of nuclear families, reach of

media, etc could be few causes of the current food retail boom in India.

Though is it true the balance of market power is shifting to retailers, it is

only to the extent that retailers know the demands of their customers. The old

industry adage that “the consumer is king” may be turned into “the consumer is

dictator” to the food retailers. The market power of consumers is growing strong as

a result of fierce competition, new technology and new business practices.

Consumers want superior quality products, at convenient forms and at

economically viable prices. Consumer market power is becoming more embedded

through the increased use of scanning data to decide product assortment, prices and

marketing strategies.

Retailing in South India

South India’s retail food sector is undergoing a slow but steady

transformation. Notable improvements have been made in the past three years.

However, relative to the population size and increasing purchasing power within

the middle and upper classes, growth in India’s retail food sector has been slower

than in most other Asian countries. This is due in part to strict controls on imported

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foods, low incomes, and a strong preference for traditional Indian cooking. In

general, South India’s retail food outlets are growing in both size and selection,

offering more, packaged dry foods, some pre-packed fruits and vegetables, frozen

foods and a variety of beauty, health and cleaning products. Stores range from

small grocery stalls about 15 square feet in size offering around 300 products, to

4,000 foot supermarkets carrying thousands of products. Over 97 percent of the

retail foods available in South Indian supermarkets are domestically manufactured.

Regarding imported products, there is awareness at the dealer level, but little to no

consumer awareness at the retail level.

Convenience Food in India - Retailing Perspectives

The following could be considered as the factors that drives the industry on

the positive growth path in India

Income factor

Upward mobility in the income of the consumers especially in urban India is

exerting its influence on food retailing. The increase in personal disposable income

augmented family income from the working couple, increasing propensity to spend

than prosperity to save are also the underlying factors of the convenience food

retail boom. An increase in income leads to an increase in standard of life where a

normal tendency of moving of consumption pattern from cereal -based to processed

foods-based, high value foods like livestock and poultry. The middle and high

income groups are growing faster than low income groups. This growing number of

households with middle and high income groups is expected to fuel the growth of

food retail especially for organised retailing in India in future. Since middle and

high income population normally tends to go to modem retail stores such as super

and hyper markets and the low income groups rely on traditional stores like kirana

shops, such growth in high and middle income groups will tend to contribute to a

growth in organized food retail in future.

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The growth of food consumption in developed countries is linked with

population growth and not significantly affected by income growth, whereas in

developing countries like India, the impact of increase in income is two-fold.

• Significant share of additional income is spent on food due to higher income

elasticity.

• Substitution of staple food with animal protein and processed foods.

These factors are transformed in to increased food retailing

Increasing awareness on health

A growing proportion of health-conscious Indians are also a cause for an

increase in food retailing. Increasing health conscious and concern about the

environmental issues with changing life styles drives the growth of products which

are healthy and hygienic. It is evident from the trend that an increasing number of

players are marketing fruit juices, edible oils and diary products uses health plank

as bedrock for positioning their products. As already discussed a major proportion

of modern consumers (41 per cent) are checking the nutritional content of the

products though majority of them (46per cent) admit that food labels are not fully

understandable to them. These health conscious customers are seeking healthy

foods, fresh or processed, in the retail outlets. The modem food retail outlets offer

customers the choice of choosing from a wide variety of products, suiting to the

customer's requirement.

Increasing quality consciousness

Indian customers are more demanding; they are increasingly quality­

conscious and also seek maximum value for the money they spent. Food retail

outlets offer the quality conscious customers quality products at a reasonable price

and a wide variety to choose from and in a convenient package. These outlets are

even importing and selling foods to 'global Indians'. The food retailers are often

practicing stringent quality check during procurement process and packing of

produce.

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Need for convenience

Another important life style related aspect that gives boost to the food

retailing is the convenience seeking factor. This involves - convenience in carrying,

cooking and eating. Portability and single serve packing is on the rise to meet the

consumers need to "eat-where-you-are". Convenience coupled with the increase in

health consciousness could be major reasons for growth in certain food categories

such as packed fruits juices, mineral water. Consumers' changing life style will

necessitate the processed foods manufactures to focus on product and process

innovation, to cater to the consumer's demand effectively.

Factors such as longer working hours, little time left for food purchase and

cooking restrict the consumers to visit multiple shops for buying the day-to-day

food and grocery requirement. The modem food retailing outlets are stocking

everything a customer wants from grocery to packed foods, raw fruits vegetables to

packed juices offering the one-stop solution to all food related issues of customers.

Fast life style

The faster life style of consumers due to an increase in the ratio of working

couples, longer working hours and rising number of nuclear families leaves very

little time for cooking. Moreover, cooking of traditional foods is time consuming.

In order to cope up with the faster life style, the packed, ready-to-eat foods, comes

handy. Moreover, customers would like to spend less time in shopping for foods

and expect them with convenience. Modem retail stores grow widely at a faster

point of operations, self check out system are becoming popular for life style..

Convenience food with variety

Modem food retail outlets are offering wide variety of food products in one

place at a reasonable price. This offers the customers a wide choice to choose from,

and at a convenient size packing.

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Increasing consumer awareness due to media exposure

The reach of satellite Television channels to the average Indian customer is

creating awareness about global products for local markets. About 47per cent of

India's population is under the age of 20 which is expected to reach 55per cent by

2015. This technology-saw young population group, watches more than 50 TV

satellite channels, and exhibit the highest propensity to spend, will immensely

contribute to the growth of the retail sector in the country. As India continues to

get strongly integrated with the world economy riding the waves of globalization,

the retail sector is bound to take big leaps in the years to come.

The Reason for the Growth of Retailers

The following are the reasons found for the growth of convenient food items

retailing throughout India.

Increasing competition benefits consumer

Competition is on the increase. It has never been more vigorous with more

than a dozen types of retailers vying for market share. Consumers have never had

more choice in variety, value, nutrition and quality. Retailers are forced to

differentiate themselves from one another through product differentiation, service

differentiation to attract more customers, which ultimately benefits the customers.

Supply chain management holds the key

As food retailing business involves procuring from different sources across

geographical locations based on comparative price advantage, the profitability

largely depends upon the supply chain management aspects, like effective

commodity procurement and logistics, price negotiations and others. The success of

major retail companies in the global retail market is largely due to their ability to

offer a wide variety of products round-the-year and at competitive, lower prices.

With their large-scale, operadons and supply chains reaching into many countries,

75

these companies can efficiently handle time-sensitive and large volumes, resulting

in cost savings. These savings in turn can be passed on to the consumers in the

form of lower prices.

India with its 1.03 billion and still growing population, growing personal

disposable income, largest producer of many food grains, milk and few other

products, etc is an attractive market for food retailing. For instance, the

proportionate expenditure on staples (cereals, grams, pulses) declined from 45

percent to 44 percent in rural India while the same was 32 percent of the total

expenditure on food in urban India. A large part of this shift in consumption is

captured by the processed food market, which accounts for 32 per cent of the total

food market. We can therefore assess the potentiality of the Indian food retailing

industry considering these facts of a larger shift in consumption pattern in favor of

processed foods especially in rural India and essentially these processed foods that

are delivered to the final consumer through food retail outlets.

Food retailing also gets a boost through the prioritization of the food

processing industry and promoting food processing in India. Food processing

industry that is worth Rs 1,280 billion (USS 29.4 billion), is one of the largest

industries in India and ranks fifth in terms of production, Consumption, export and

expected growth. The concessions and incentive measures to the industry are also

numerous; such as, income tax deduction for 10 years for fruits and vegetables

preserving and packaging industry, excise duty waiver on dairy, poultry and fish

products machinery, establishment of food parks, etc offered by the government

will give a thrust to food processing industry. The increased and efficient

production of processed foods can be delivered to the final consumers at economic

prices through the food retailers that ultimately give a boost to food retailing

Food outside home is also an important segment of food retailing. Eating out

is not a special occasion any more it has become a way of life. A study says that the

amount of money Indians spend on meals outside the home has more than doubled

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in the past decade, to about USS 5 billion a year and is expected to double again in

about half that time. The traditional eat-at-home Indian consumer not only prefers

to eat out but is also demanding value for money in terms of quality, variety and

service. The trend of an out-of-home food eating is expected to continue to grow,

that will contribute to the overall growth of food retailing industry. The Indian

food retailing sector has started attracting the attention of the foreign investors.

Italian food processing and packaging industry representatives from the Emilia-

Romagna region of northern Italy visited India to look for food retail business

opportunities.

Fast food and out-of home eating habit increases

In India, the habit of eating out-of-home and taking fast food is fast

spreading. Though traditional Indians are believed to be biased towards the

traditional and home-prepared foods, the fast food phenomenon is still fast catching

up. Contrary to the belief that a reliance on traditional and home-made preparation

may actually hinder the growth of fast food culture has, an altered view towards

out-of-home meals, a willingness to spend and, most importantly, the urban Indian's

appetite for ‘global palette’ have catalyzed its consumption. What is more

interesting is that this increasing habit of fast food has gone to such an extent that

urban Indians now find themselves amongst the top 10 most frequent consumers of

Fast Food across the globe. A study by ACNielsen indicates that over 70per cent of

urban Indians consume food from take-away restaurants once a month or more

frequently out of which 37 per cent of the adult Indian population do so at least

once a week. This indicates that there is a vast scope emerging for fast food

segments in India.

Retail shoppers buy the private labels product

The recent phenomenon of private label trend is fast gaining attention within

retailing in India. ACNielsen Retail and Shopper Trends 2004 report says that

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about 47per cent of all Indian shoppers who shop within modem format stores like

hypermarkets and supermarkets are aware of private labels with 30per cent

claiming to have purchased them as well. Moreover, the private labels are found

mostly in relatively new store format than in traditional ones. It also indicates the

Indian shopper's accelerated evolution and willingness to explore newer retail

environments. However, this phenomenon will render the brand manufacturers to

devise strategies to trade off the competition from these private labels, once the

Indian shopping environment evolves and imitates the one in the more developed

markets of the Pacific like Australia and New Zealand where the phenomenon of

private labels are prominent.

It also reveals that Indian shoppers are the most novel seekers across the

Asia Pacific region. About 48 per cent of shoppers in India admit that they 'love to

try new things', making them the most novelty seeking shoppers around the region

followed only by the Malaysian shoppers. This reassures the retailers and FMCG

marketers in India's retail marketing evolution is sustainable one. This novelty

seeking attitude is bound to ensure that Indian consumer is receptive to both

innovation and change prerequisites for new product launch and shopping formats.

Brand-conscious consumers

Indian consumers are brand-conscious as well, while there is tendency tor

try-out for private labeled products. For example, the market for branded packaged

snacks or 'Namkeens' has grown by 34 percent in 2005. This can be attributed to

the urban lifestyle similar to consumption behavior of more developed countries,

when Indian consumers are moving. Towards a more cosmopolitan lifestyle snack

foods that are easily portable and hygienic have become a ready substitute for

home-made food items. Other factors such as the rapid expanse in its availability

the intensive promotional support in these categories and overall vibrance in terms

of pricing and packaging have aided to its growth.

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Health consciousness increases sales

An increased preference for healthier product alternatives appears to be

stemming from a greater health-consciousness and is further heightened by rapidly

evolving work and lifestyle habits in a finer that has increased the consumption of

product categories like non-carbonated soft drinks find breakfast cereals. Indian

food and beverages markets is growing stronger by 5 per cent growth which higher

that of average global growth of 4 per cent. Individual product categories such as

non-carbonated soft drinks, impulse foods and convenience foods within the

food and beverage category, are increasingly demanded by Indian consumers

as out-of-home consumption and affordability increases with growing health

conscious. Impulse foods with superior packaging technology satisfy the

consumer's query for hygiene and cleanliness.

Food labeling and the consumer

Interestingly, Indian consumers are aware about the food labels and check

the nutritional labels of the foods items. They are more particular in this aspect

especially when they purchase foods for their children and when the buy things the

first time. A study indicates that most Indians (41per cent) check nutritional labels

when purchasing a product for the first time. The proportion (21 per cent) of Indians

checking nutritional labels when purchasing food products for their children is

greater than in any other country within Asia Pacific and across the globe. This

emphasizes the need for marketers of children's food products to place a special

emphasis on the information they provide shoppers with. However, only 46per cent

of consumers understand food labels partially, while 5per cent have no

understanding of the product labels at all. This represents a clear opportunity for

marketers in India to help distinguish their products. Further, Indian customers are

mostly looking into the Fat and Calorie contents in food The study mentions that

about 52 per cent of Indians' claim to check food labels for fat content regularly.

Preservatives and Coloring are other ingredients that a significant percent (44 per

79

cent - 45per cent) of Indians keep a watch for. It explains that the external forces

that have consumers' attention to the nutritional content of food products in India

are both sociological and marketing driven. A high incidence of diabetes and

cardiac ailments afflicting Indians and curiosity generated by the aggressive

introduction of different packaged food varieties and cuisines are responsible for

the checking of food labels.

Single outlet standalone stores challenge to supermarket formats

The standalone stores are single self-service stores that are an important

supermarket store-type within the modem Indian retail environment. Standalone

supermarket stores that are not part of a multi-city or local chain of stores

contribute over almost one-fourth of FMCG including foods sales through modem

format retail outlets. While traditional retail formats like Kirana stores, grocers,

paan outlets still hold sway, modem retail formats are growing in importance for

the FMCG marketer mainly clue to the range of products that they stock and the

high average daily sales per store of FMCG products they yield.

Some urban Indian cities however, appear to enjoy a higher than average

contribution from standalones. For example in Delhi and Lucknow, more than half

of all FMCG sales through supermarkets come from standalone stores. While in

smaller cities like Varanasi, Chandigarh and Patna, all the FMCG sales are coming

from standalones due to the absence of local or multi-city chains. Even in Chennai,

which has a healthy presence of multi-city and local retail chains about 50per cent

FMCG (including foods) sales comes from standalones to supermarket FMCG

sales. Standalone stores' large sales share can be attributed to their geographical

placement as they reach over 40 percent of the purchasing population. Moreover,

standalones offer other services to their consumers within their catchments; a

higher percentage of these stores offering telephone ordering and home delivery.

While standalones serve a greater number of consumers, they present an interesting

challenge for I marketers in terms of visibility. A study by ACNielsen indicates that

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the average shelf space per store at 1896 sq.ft. Which implies that their smaller

overall size does not restrict them from displaying more categories and brands?

Compared to the 122 product categories stocked by the average supermarket,

standalones stock an average of 126 product categories. Combining this with the

fact that the average number of customers visiting standalone stores per day and the

average spend per consumer is lower than the average supermarket, means that

products and brands have to compete much harder for the consumer's rupee within

this store format. The branded packaged goods the marketers have to effectively

design their in-store piomodons strategy and point-of-purchase material in order to

stimulate the off-take of packaged foods within this modem store format.

Efficient supply chain management by Global Data Synchronization (GDS)

Data synchronization is a global, internet-based business process whereby

trading partners align and synchronize master data automatically and in real-time. It

helps in exchanging accurate, up-to-date and standards-com pliant supply chain

information. The simple idea behind data synchronization is that the seamless

sharing of information, enabled by technology, can create value and eliminate

waste on a grand scale. In India, GDSN is initiated by ECR India, an independent

joint trade and industry body to promote the use of 'efficient consumer response'

(ECR) techniques. These techniques help remove unnecessary costs from the

supply chain and are designed to make the FMCG sector, as a whole, more

responsive to consumer demand. The ECR movement in India was launched in

October 1999 by J&J, HLL, P&G, Godrej, Nestle, PwC, TCIL, Food World and

EAN India. The movement has since rapidly progressed to cover 36 companies.

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Conclusion

Retailers operate in a harsh and fast changing environment, which offers

threats as well as opportunities. Retailers are always searching for new marketing

strategies to attract and hold customers. In past, retailers attracted consumers with

unique products, more or better services than their competitors offered or credit

cards. National brand manufacturers, in their drive for volume have placed their

branded goods everywhere. This result in retail assortments is looking more and

more alike. Service differentiation among retailers has also eroded. Customers

have become smarter and more price sensitive hence service differences are

shrinking. As a result many retailers are re-thinking their marketing strategies to

withstand in the market.

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References

1. Levenstein, H: Paradox of Plenty, University of California Press, P.106-107

2. The Federation of Indian Chambers of commerce and Industry (FICCI)

Market Report: food and Beverages survey (As of February 2006)

3. Henry C.J.K.: Convenience foods Encyclopedia of Food Science, Food

Technology and Nutrition, Oxford Polytechnic, UK, 2: 1224 -1227. (1993).

4. S.S Manohar, BV Balasubramanyam and Sheshachala, Convenience Foods

- Growth & Prospects, Indian food Industry, Vol.24, No. 4, (July-Aug) 2005.

National Dairy Research Insitute (NDRI), Southern campus.

5 McKinsey Report on Confederation of Indian Industry, (CII), 2005-06.

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