Excerpts from India Food Report 2016
Consumer India is excited, needy, ready and waiting for relevant, value-right supply of all manner of food and food service. They are hugely under-served by big business even as street food and small eateries evolve and innovate. Instead of waiting for Consumer India to develop a taste for foreign food and celebrating small steps here, can we add value to customers’ preferences today?
The mega market opportunity for packaged food in India is visible to all. About 270 million families, most of them having children, are getting less poor year on year. That there is, and will be, a continuously growing market both in terms of volumes and per capita spends on food, is a no-brainer. Even today, 50-60 per cent of India’s large economy is accounted for by household consumption and if you take the routine expenditure of Indian households, over half of that is food. India’s per capita income is so low, even more so if viewed at a stratified level, that there’s not much fear of saturation of food needs for a long time to come.
Food is also not just about stomach gratification and nourishment. It is also about social expression and entertainment, and the adventure of new experiences, all of which Consumer India craves for and makes huge efforts to get.
Work styles and lifestyles also have more people staying out of the house for long hours and having to make arrangements to eat without bankrupting themselves. Add to this the anxiety of a self- employed population (which is what most of India is) to stay healthy so you can go out and earn your daily bread. Then, there is the focus on “brain food” for children to compete better and the old Indian belief that connects food to health. Put it all together and we have a perform storm. A storm of opportunity that is already here with a ready and waiting Consumer India, which is not being served by big business to anywhere near its potential or desire.
The packaged and processed food and food service market is way below its potential, if we assess the potential in terms of consumer / customer needs and spends. And let’s not consider the sum total of big food company sales of whatever they have decided to sell, or worse, of what they sell in other parts of the world and transplant here, even if tweaked for the Indian palate.
The demand structure of India is not going to change in a long time and neither will its challenging business economics.
It is a large market made up of a lot of people consuming a little bit each, which adds up to a lot, a high volume-low margin business that guzzles money before spewing it back. Also, food in India has an unimaginable variety, and is complex. Chapatis and puris will not be traded in for tortillas and pizzas merely because globalisation is here and money and people can move more freely around the world. That said, there is also a great spirit of experimentation and adaptation, which Consumer India displays when it comes to food. Adopting new foods is not new to Indians. The idli and dosa have travelled northward and the chapatti and chole southward.
So the Indian food market opportunity offers potential for great gains but great pain has to be borne first. The consumer is ready and waiting, and small food suppliers are multiplying to serve them; but where are the big suppliers, capable of R&D-led innovation on the one hand and driving down prices through economies of scale on the other?
Let’s start with ready-to-eat or even ready-to-cook chapatis of which we eat one trillion of them a year. No one yet has been able to get the quality right and the mix right, and the chapatti maker machine that looks so cool and easy and tempting in the TV commercials rarely produces the same results at home. If there were some more research on it to make it more user friendly and reliable, sales will explode. Making chapatis is negative labour to be got rid off, as far as most people are concerned. But poor quality chapatis are not the answer either.
As time progresses, we all know that Indian households will eat more and eat better, as incomes grow and the willingness to pay higher prices for higher quality is inevitable. But what most companies don’t realise is that Indian consumers are already paying more, driven by high levels of food inflation for average quality fresh food. Given the periodic spurt in food prices, if you are poor, your child may not see vegetables or tomatoes or sometimes even onions on a halfway regular basis. And if you are rich, you will pay the horrendous prices and feel very deprived about the quality you get. Fresh vegetables and even dals that you cook regularly have become bad value for money. And no one has stepped into the gap with a lower price higher performance point than fresh.
Modest income consumers are ready, and there is enough profit room, given the benchmark of fresh for some non-fresh form to work. The popular assumption is that factory made food is for the rich who will pay for more than fresh because of the convenience offered or the exotic recipes (that is the way the Indian packaged food market has been so far). That may have been so two decades or even a decade ago, but nowadays factory made means cheaper and better. Furniture has proved that, apparel has proved that and there is a huge opportunity for a lower price-higher quality point for food that serves the less well-heeled who are larger in number. There aren’t enough good quality frozen vegetables even for the affluent who have freezers and shop at places that do too. Even at a good margin pricing, it will sell, becoming a win–win for both manufacturer and consumer.
At the height of food inflation last year, when the consumer was too shocked to understand what adjustments to make, the opportunity to change consumer habit easily was ripe. But the supply side didn’t step up; had it done so, it would have changed the consumer quite significantly. But then, only they get asked to dance who are already present on or near the dance floor. And many companies who have the ability to innovate products are waiting for the market to evolve before they will dress up to go to the dance.
Let’s take the simple example of curd (why call it yoghurt when most consumers call it curd?). Many market watchers were surprised at how quickly the plain curd market took off. Didn’t Indians prefer home made and fresh? But talk to consumers and they will tell you all the million things they have to do to get the curd to set properly. Cover it with a tea-cosy in winter, rush it to the fridge at the precise moment in summer or it will be too milky or too sour, put a green chilli in it when setting, results not guaranteed at all, depends on the milk quality, etc. What a relief, they say, that all this is somebody else’s headache! Ditto for lassi that consumers love to have in summer – why add cleaning mixing vessels when water is short into the mix of woes. But why have large companies not managed to scale this to far higher levels that an Indian staple should be? Why is it still the preserve of the regional small scale or cooperative sector? The absence of cold chain is one reason that people give. But lots of business models in food, especially quick service restaurants, use distributed manufacturing and marketing and centralised buying of ingredients to take advantage of scale benefits.
Come summer, when it is needed the most, the category invariably goes into short supply, and the consumption habit never gets entrenched. Another reason it doesn’t scale as much is that, like tea, the way it is consumed and hence the taste it should have varies by geography and companies are not varianting for it. Sometimes this over-engineers the product and adds cost to the company and no value to the consumer. I have seen south Indians take certain brands of curd and dilute them with water so that it is of the right consistence to eat with rice. Curd in a south Indian household doesn’t often work for eating with aloo ka parathas. It needs more stiffening! In Bengal, it must go well with sugar.
Companies say that this is all basic low margin products, what is needed is value-added curd to make this business attractive. However, value addition doesn’t have to come from fruit flavoured yoghurt that is a hard sell. It can come from creating a variety of new flavours that are in tune with the Indian palate and the myriad ways in which curd is consumed. Perhaps, what is needed is some research to develop the perfect curd setter apparatus and some food-based ingredient additives that make curd set better. Every household has its own tea making vessel, dosa making tawa, and a habit of using different vessels for different purposes (and different people too!).
As is typical when supply side analysis of market opportunity is done based on metrics such as ‘organised sector’ sales turnover and growth or per capita consumption of branded or packaged food of different categories, the conclusion is misleading. What it shows is a relatively small but fast growing market that is yet to ’emerge’. It is often said that the limitations of organised retail availability are in part to blame for this and the prescription is to wait until the consumer and the environment are ready. But if the metric were the total consumption of sandwiches or Chinese food plates on the street, the size and growth in number of sandwich stalls or Chinese food carts delivering noodles and increase in average price and variety offered, the story is exactly the opposite.
The organised big companies, particularly the MNCs, have a very stark offering that is very basic and not value adding for a consumer base that is being spoilt with a vibrant and innovative and ever expanding offerings from the so-called unorganised sector or the small food marketer. This sector has created a vibrant food market throbbing with energy and innovation that often goes unnoticed or is dismissed by market analysts.
Big businesses don’t have a range of diabetic sweets and biscuits. But the mithaiwalas do, local bakeries do, and small local dessert and chocolate makers do. Big businesses feel that the market is too small. But relative to what, is the interesting question.
India, regrettably, has amongst the world’s largest diabetic population. Local retailers, especially in big cities, have lots of exciting packaged food items that are available, made by small suppliers, and sold through small stand-alone shops. The number of SKUs is mind boggling and the variety shows huge innovation, both in vocabulary as well as in content.
I was invited, a few years ago, to meet with the global management team of a large and successful global company, on their India visit. I entered the conference room to find a set of competitive food products displayed, mostly from other MNCs, which did not even provide a whisper of what local competition they were up against. I carried some products bought from the local food speciality retailer, ranging from pan sweets in handy little plastic boxes to mango jelly “aam papad’ sweets in a lovely colour encased in crinkly transparent wrappers, chaat flavoured khakhras, standee pouches with ready mix poha (just add water), various sauce consistency chutneys in bottles and so on. They were quite surprised with what they saw, and at the prices, but wondered what it had to do with them. Their competition was of the future kind, and would happen when the market evolved. Until then, there was not much need to invest heavily in the market. Just wait for consumers’ incomes to grow, and for them to modernise further and grow out of their present consumption habits.
In the meanwhile, all forms of competition are exploding and evolving. Aggregators take orders and deliver from various restaurants and individual restaurants do home delivery. Now there is fresh fish, cleaned thoroughly, ready to use, packed neatly in thermocol containers with lots of ice that is delivered to my doorstep in Mumbai. And they also call me and check what I want, as good a CRM as my local kirana.
The most interesting example of new competition was recently reported in the media of the birth of a new business model where train travellers can order their meals online before the start of their journey and have it delivered piping hot at stations on the way, through a network of food providers in these towns. At least three companies are offering this service. Maybe soon we will see an Uber type app for food as well, where homemaker cooks will, with one day’s notice, give you what you want when you have guests for dinner and can’t afford to order the restaurant fare.
Small competitors and small retailers have been continuously innovating, both in product and in packaging, and testing higher priced offerings. Chaatwallahs everywhere have a widened variety with improved presentation and at attractive prices, which make their range quite exciting – and this goes beyond using mineral water. There’s lots of new product extensions happening as well. You can go and eat Raj kachoris or try Chinese Bhel. Haldiram’s has the formula but has not scaled too much geographically. If all of India has enthusiastically embraced Punjabi wedding rituals like mehndi ceremonies and sangeets, couldn’t the market for chaat outlets be at least as large?
Indigo airlines has shown that the young consumer is ok to have “just add water” biryani or upma or pre-cooked mini masala dosa rolls. Why can’t we buy this kind of food in food-specialising kiranas?
Food marketers have tough competition from food services, especially the micro entrepreneurs who provide any kind of dabba that you may require at any time you may want it and at different price points. The variety available at the road side shacks has also increased. The Indian consumer loves to eat momos at Delhi’s Khan market pavement and vada pav and chai have the longest queues even at swanky airports. An udipi restaurant in the heart of Mumbai’s Dadar has no qualms putting Thai food (such as it understands it) on its menu and a bhojanalaya deep south does noodles too nowadays, in order to keep its novelty seeking customers.
In spite of the growing health consciousness, people are not jumping up and down wanting to eat oats for breakfast. But oats idli and multigrain dosa for breakfast is catching on.
Serving small and micro food service is a large opportunity and there are companies in this space who are willing and ready to embrace better ways of improving productivity, commanding higher prices and improving efficiency. But it’s not clear which big companies are innovating for them and helping them reduce their hassles while keeping their ability to differentiate. Ready to use ingredients that improve efficiency and hence productivity, better cleaning solutions, more efficient and customised cooking equipment and properly engineered packaging that is neither over engineered nor under, all have a great perceived value. In the equivalent of a small Udipi restaurant type place in China, the plastic plate spoon and fork come wrapped in a polythene cover that says it has been sterilised. I think that would work very well here.
More bread is eaten by lower income people than upper income people, double roti as it is called. Could that double roti be made differently to come closer to a chapatti and come with ready to eat packets of cheap vegetables to heat and eat? Kiranas, food hawkers and vegetable vendors are a ready distribution channel for low priced food brands whether ready to eat or ready to cook. They are happy to add to their repertoire, but where is the supply?
We need to reengineer our minds and see the opportunity for what it is. We are fast becoming a nation of foodies, though I suspect we always have been that way – otherwise how could so many complex cuisines and dishes survive and evolve and travel all over the country for so many centuries! Now we have so many cooking shows on TV and so much on the Internet and we have mastered the art of Indianising every other cuisine and fitting it into our repertoire. The small food entrepreneur, the street vendor and the consumer are all ready. But where is big business in all this?
The food market is not waiting to emerge. It already has. Consumers don’t need more time to be ready for habit changes. They have been ready for some time now.
Excerpts from India Food Report 2016