DISSERTATION

ON

CHALLENGES FACED BY FMCG

COMPANIES

IN

READY TO EAT MARKET

Submitted to: - Submitted by:-

Prof. Arun Bhattacharya Saurabh Sinha (PGSF0847)

PGDM (SERVICES)

BATCH:-2008-10

JAIPURIA INSTITUTE OF MANAGEMENT, NOIDA

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 ACKNOLEDGEMENT

I would like to thank Prof. Arun Bhattacharya for giving me the opportunity to work on this
emerging market of ready to eat in India. By doing so I have learnt about the major issues related
to this market in context with the FMCG industry. I also learnt and gather information about the
trend and the behavior of the Indian population for this market. Another aspect on which my
research has shown is the issues and problems faced by the FMCG companies. This has brought
to me at the conclusion that this market will emerged as one of the most profitable and growing
industries in India.

I would also like to thank the companies and people for lending me full support for completion
of my successful project.

Saurabh Sinha
pgsf0847
PGDM (Services)
Batch: - 2008-10
Jaipuria Institute of Management
Noida

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 CONTENTS

1. Introduction

2. Agriculture Industry

3. FMCG in India

4. Players in FMCG

5. Indian Food Processing Industry

6. Ready to Eat Market

7. Objectives of Study

8. Data Analysis

9. Conclusion and Suggestions

10.Findings

11.Questionnaire

12.Bibliography

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4
As more and more people in developing countries live in cities, urban food and nutrition issues
are becoming increasingly relevant and pressing. New approaches focusing on urban consumers
need to be developed. The urban/rural dichotomy has to give way to strategies integrating both
sectors.
As there are wide disparities between cities of the developing world, reference to an "average"
urban consumer is misleading and the identification of consumer groups having different

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cultural backgrounds, socio-economic status, lifestyles and consequently, different
consumer behaviors and needs, is preferred. Although general trends in food consumption
patterns have been documented, such analysis underscores serious gaps in our knowledge and
understanding of which foods are consumed by which consumer groups, in which form, where
and why. Consequently, the foods and diets of the various strata of urban populations deserve
more attention than they have been given so far, not only for their implications on food and
agriculture planning, but also for determining remedial actions and preventive measures. For
middle class consumers, price is only one of the factors that motivate food choice. Others
include taste, quality, prestige, cultural value, appeal, convenience, and so forth.
Understanding consumer motivations and knowing the relative importance of various criteria for
different consumer groups are essential to the development and promotion of local products.
Thus, in addition to aspects of production, efforts in processing, marketing and distribution
need to be given adequate emphasis.

Eating meals prepared outside the home is a typical feature of urban lifestyles, often conditioned
by long travel times to work, limited cooking facilities and other resources for food preparation
in the home, as well as greater convenience and often competitive prices. "Street foods" are a
dynamic sector of the informal economy; they are an important social phenomenon. They are
proliferating at a tremendous rate in a number of cities, as they satisfy needs that are not met by
the formal sector.

Consumers have specific needs and rights with regard to their food. They have to be protected,
oriented and represented. With intensive urbanization, the food systems are becoming
increasingly complex and very large volumes of food move through the systems. This magnifies
the health and economic risks to which urban consumers are exposed. Another nutritional aspect
of urban foods is the growing supply of highly processed foods and drinks (locally processed or
imported), as these may be of lower nutritional quality than the unrefined or traditionally
processed foods that they displace.

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Consumer needs and wants are determined by a number of internal and external factors. The
urban environment entails important changes in lifestyles, economic activities, exposure to
marketing and reference group influences.

Now the time is to provide better food processing & its marketing infrastructure for Indian
industries to serve good quality & safest processed food like ready to eat food. It is opening a
new window in world scenario as far as taste & acceptance is concerned. The retort processed
foods do not require rehydration or cooking and can be consumed straight from the pouch
with or without pre-warming, depending upon the requirement of the users and the
weather conditions. These foods meet the specific needs of convenience, nutritional adequacy,
shelf stability, storage, distribution to the centers and have become very popular after the Year
2002. Some of the mouth-watering dishes in retort pouches include sooji halwa, upma, chicken
curry, mutton curry, fish curry, chicken madras, chicken kurma, rajma masala, palak
paneer, dal makhni, mutter paneer, potato-peas, mutter mushroom, mutton pulav, etc.

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Agriculture is the backbone of Indian Economy. About 65% of Indian population depends
directly on agriculture and it accounts for around 22% of GDP. Agriculture derives its
importance from the fact that it has vital supply and demand links with the manufacturing sector.
During the recent years agriculture sector has witnessed spectacular advances in the production
and productivity of food grains, oilseeds, commercial crops, fruits, vegetables, food grains,

8
poultry and dairy. India has emerged as the second largest producer of fruits and vegetables in
the world in addition to being the largest overseas exporter of cashews and spices. Further, India
is the highest producer of milk in the world.
Agriculture in India is in the hands of millions of peasant households, a bulk of which comprise
tiny land holdings with preponderance of owner cultivation. There is hardly any direct
government intervention in the production and investment decisions of the farmers but the
government does influence the legal, material and economic environment in which farmers
operate. Though tremendous progress has been made to exploit irrigation potential in the country
still two third of area under cultivation is unirrigated and there is thus heavy dependence of
production on vagaries of nature i.e. rainfall. Irrigated areas have experienced sharp increase in
productivity level and large part of output at such farms is for market. On the other hand,
productivity in unirrigated areas has remained either stagnant or experienced very small growth
and most of the farmers in such areas produce for subsistence purpose.
At overall level, agricultural growth remained slow (below 3 percent) in the country. Apart from
that, agricultural growth remained confined to a few well endowed pockets which have created
regional disparities.
India’s agricultural area is vast with total arable and permanent cropland of 170 million hectares. It has
the second largest arable area in the world after the United States. OECD in it’s 2007 agricultural policy
monitoring report notes that Indian agriculture is dominated by a large number of small scale holdings
that are predominantly owner occupied.

The average size of holding in the late nineties was about 1.4 hectares and continues to decline,
as farms are usually divided on inheritance. Out of India’s 116 million farmers, around 60% have
less than 1 hectare and together they farm 17% of the land. The share of medium to large farms
(above 4 hectares) is very small at just over 7% of all holdings, but these farms account for
around 40% of the land. The implication is that many of the very small farms are subsistence
holdings, with low investment and little productivity growth.

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RECENT TRENDS IN INDIAN AGRICULTURE:
Though green revolution has been widely diffused in irrigated areas. Throughout the country, the
dry land areas have not seen benefit of technological breakthrough as witnessed through green
revolution technology. Of late, improved varieties of oilseeds and course cereals have provided
some opportunities for productivity growth in dry land areas. A new phase was started in India’s
economic policy in 1991 that marked significant departure from the past. Government initiated
process of economic reforms in 1991, which involved deregulation, reduced government
participation in economic activities, and liberalization. Though much of the reforms were not
initiated to directly affect agriculture sector, the sector was affected indirectly by devaluation of
exchange rate, liberalization of external trade and disprotection to industry. Then, came new
international trade accord and WTO, requiring opening up of domestic market. Initially there
were strong apprehensions about the impact of trade liberalization on Indian agriculture which
later on turned out to be real threat for several commodities produced in the country. All these

10
changes raised new challenges and provided new opportunities that required appropriate policy
response. Besides, last two decades had witnessed mainly price intervention that had a very
limited coverage, and there was a sort of policy vacuum.

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Marketing of Agricultural Products:

Form of Markets exists in India:

Agricultural markets in India are dominated by the existence of unorganized and unregulated
agricultural mandies with the presence of a large number of middlemen and widespread
prevalence of malpractices. Absence of proper warehousing facilities in the villages, lack of
proper transportation facilities and infrastructure such as rails and good quality all weather roads
and ignorance about the market prices of their products are some of the important factors for
exploitation of farmers from middle men. They are forced to sell their products to these
middlemen at the farm gate at throwaway prices.
Agricultural Market Reforms in India:
Ministry of Agriculture had formulated a model law on agricultural marketing in consultation
with State/Union territory Governments to bring about marketing reforms in line with emerging
trends. This model act enables establishment of private markets/yards, direct purchase centers,
consumers/farmers markets for direct sale, and promotion of public-private partnership (PPP) in
the management and development of agricultural markets in the country. It also provides for
exclusive markets for onion, fruits, vegetables, and flowers. Regulation and promotion of
contract farming arrangement has also been made a part of this legislation. A provision has also
been made for constitution of State Agricultural Produce Standard Bureau for promotion of
grading, standardization, and quality certification of agricultural produce. So far, 15 States and 5
Union Territories have amended their Agricultural Produce Marketing Committee (APMC) Act
to derive the benefits of market reforms.
E-Chaupal:
E-Chaupal is a business platform consisting of a set of organizational Subsystems and interfaces
connecting farmers to global markets. It has been initiated by Imperial Tobacco Company (ITC)
who is quite active in agricultural sector in India. This e-chaupal business platform consists of
three layers each of different level of geographic aggregation.

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Each of the three layers is characterized by three key elements:

1. The infrastructure (physical or organizational) through which transaction takes place.

2. The entity (person or organization) orchestrating the transactions, and
3. The geographical coverage of the layer.

The first layer consists of the village level kiosks with internet access (e-chaupals), managed by
an ITC trained local farmer and within walking distance (1-5 kilometers) of each target farmer.
Each cluster of five villages gets an e-chaupal, which is justified by sparse population in rural
India. The second layer consists of a brick and mortar infrastructure called hubs managed by the
traditional intermediary who has local knowledge/skills called a Samayojak and within
tractorable distance (25-30 kilometer) of then target farmer.
Agricultural Commodities Exchanges:
To introduce future trading in agricultural commodities in India, two commodity exchanges have
been introduced in 2003 for future trading. They are, National Commodity & Derivatives
Exchange Limited (NCDEX) and Multi Commodity Exchange of India Limited (MCX). These
exchanges are majorly dealing in agricultural commodities. They are involved in forward trading
to mitigate price risks of the farmers.

In the recent decades, there is an increasing demand of organic foods in the developed world.
Organic farming is an important pillar of sustainable agriculture, which is beneficial for
producers and consumers both. India has a great potential for organic farming using traditional
wisdoms prevailing in the villages of India. In fact, a large section of Indian agriculture uses
more or less organic method of farming using minimum level of chemical inputs. Promotion of
organic farming in India could prove beneficial to increase share of Indian agricultural export in
the world export.

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14
FMCG industry, alternatively called as CPG (Consumer packaged goods) industry primarily
deals with the production, distribution and marketing of consumer packaged goods. The Fast
Moving Consumer Goods (FMCG) are those consumables which are normally consumed by the
consumers at a regular interval. Some of the prime activities of FMCG industry are selling,
marketing, financing, purchasing, etc. The industry also engaged in operations, supply chain,
production and general management.

FMCG industry economy

FMCG industry provides a wide range of consumables and accordingly the amount of money
circulated against FMCG products is also very high. The competition among FMCG
manufacturers is also growing and as a result of this, investment in FMCG industry is also
increasing, specifically in India, where FMCG industry is regarded as the fourth largest sector
with total market size of US$13.1 billion. FMCG Sector in India is estimated to grow 60% by
2010.

Common FMCG products

Some common FMCG product categories include food and dairy products, glassware, paper
products, pharmaceuticals, consumer electronics, packaged food products, plastic goods, printing
and stationery, household products, photography, drinks etc. and some of the examples of FMCG
products are coffee, tea, dry cells, greeting cards, gifts, detergents, tobacco and cigarettes,
watches, soaps etc.

Market potentiality of FMCG industry

Some of the merits of FMCG industry, which made this industry as a potential one are low
operational cost, strong distribution networks, presence of renowned FMCG companies.
Population growth is another factor which is responsible behind the success of this industry.

The Indian FMCG sector is the fourth largest sector in the economy with a total market size in
excess of US$ 13.1 billion.It has a strong MNC presence and is characterised by a
wellestablished distribution network, intense competition between the organised and unorganised
segments and low operational cost. Availability of key raw materials, cheaper labour costs and
presence across the entire value chain gives India a competitive advantage. The FMCG market is
set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well
as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash
etc in India is low indicating the untapped market potential. Burgeoning Indian population,

15
particularly the middle class and the rural segments, presents an opportunity to makers of
branded products to convert consumers to branded products. Growth is also likely to come from
consumer 'upgrading' in the matured product categories. With 200 million people expected to
shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment
in the food-processing industry.

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17
Hindustan Unilever Limited also called Hindustan Lever Limited (HLL) was established in 1933
as Lever Brothers India Limited. Hindustan Lever Limited (HLL) is India's largest Fast Moving
Consumer Goods Company, with a customer base of 2 out of every 3 Indian in the category of
Home & Personal Care Products and Foods & Beverages. The company has combined volumes
of about 4 million tonnes and sales of Rs.10, 000 crores. HLL is also one of the country's largest
exporters; the Government of India has recognized HLL as a Golden Super Star Trading
House.

Type Public

Headquarters Mumbai , India

Mr.Harish Manwani ,
Key people
Chairman Douglas Baillie, CEO

Industry FMCG

Products Tea, soap, detergents

Employees 41,000

Parent Unilever

Website www.hll.com

Some of HLL brands are:

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• Kwality Walls Ice Cream
• Hamam
• Lifebuoy
• Rexona
• Lux
• Liril
• Moti Soaps
• Breeze
• Lipton Tea
• Brooke Bond Tea
• Bru Coffee
• Pepsodent
• Close Up
• Surf
• Rin
• Wheel Laundry Detergent
• Kissan
• Annapurna
• Pond's
• Vaseline
• Fair & Lovely
• Lakmé
• Clinic Plus
• Clinic All Clear
• Sunsilk and Lux Shampoos
• Vim
• Ala Bleach
• Domex
• Pureit Water Purifier

The Hindustan Lever Research Center (HLRC) was established in 1958, and now has facilities in
Mumbai & Bangalore. HLRC has 200 highly qualified scientists and technologists, many of
them with post-doctoral experience. HLL also runs various ambitious programmes like Shakti.
Shakti's aim is to create opportunities for rural women thereby improving their livelihood and
standard of living in rural sector. Shakti also includes health and hygiene education through the
Shakti Vani Programme. The programme covers about 50,000 villages in 12 states. HLL's
motive is to take this programme to 100,000 villages influencing the lives of over a 100 million
rural Indians. HLL is also involved in running a rural health programme - Lifebuoy Swasthya
Chetana. The programme aims to inculcate the hygienic practices among rural Indians to bring
down the figure of diarrhea patients. It has already covered 70 million people in approximately
15000 villages of 8 states.

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Imperial Tobacco Company(ITC) is one of India's foremost private sector companies with a
market capitalization of nearly US $ 19 billion and a turnover of over US $ 5 billion. ITC is rated
among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable
Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld
and among India's Most Valuable Companies by Business Today. ITC ranks among India's `10
Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the
Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by
Business Week.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging,
Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel,
Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an
outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards,
Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of
Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.

As one of India's most valuable and respected corporations, ITC is widely perceived to be
dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a
commitment beyond the market". In his own words: "ITC believes that its aspiration to create
enduring value for the nation provides the motive force to sustain growing shareholder value.
ITC practices this philosophy by not only driving each of its businesses towards international
competitiveness but by also consciously contributing to enhancing the competitiveness of the
larger value chain of which it is a part.”

ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers
of growth anchored on its time-tested core competencies: unmatched distribution reach, superior
brand-building capabilities, effective supply chain management and acknowledged service skills
in hotels. Over time, the strategic forays into new businesses are expected to garner a significant
share of these emerging high-growth markets in India.

ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the
country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). The Company's
'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by
empowering Indian farmers through the power of the Internet. This transformational strategy,
which has already become the subject matter of a case study at Harvard Business School, is
expected to progressively create for ITC a huge rural distribution infrastructure, significantly
enhancing the Company's marketing reach.

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Nestlé India is a subsidiary of Nestlé S.A. of Switzerland. With seven factories and a large
number of co-packers, Nestlé India is a vibrant Company that provides consumers in India with
products of global standards and is committed to long-term sustainable growth and shareholder
satisfaction. The Company insists on honesty, integrity and fairness in all aspects of its business
and expects the same in its relationships. This has earned it the trust and respect of every strata of
society that it comes in contact with and is acknowledged amongst India's 'Most Respected
Companies' and amongst the 'Top Wealth Creators of India'.
Nestlé’s relationship with India dates back to 1912, when it began trading as The
Nestlé Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling
finished products in the Indian market. After India’s independence in 1947, the
economic policies of the Indian Government emphazised the need for local
production. Nestlé responded to India’s aspirations by forming a company in India
and set up its first factory in 1961 at Moga, Punjab, where the Government wanted
Nestlé to develop the milk economy. Progress in Moga required the introduction of
Nestlé’s Agricultural Services to educate, advise and help the farmer in a variety of
aspects. From increasing the milk yield of their cows through improved dairy
farming methods, to irrigation, scientific crop management practices and helping
with the procurement of bank loans. Nestlé set up milk collection centres that would
not only ensure prompt collection and pay fair prices, but also instil amongst the
community, a confidence in the dairy business. Progress involved the creation of
prosperity on an on-going and sustainable basis that has resulted in not just the
transformation of Moga into a prosperous and vibrant milk district today, but a
thriving hub of industrial activity, as well. For more on Nestlé Agricultural Services.

Nestlé has been a partner in India's growth for over nine decades now and has built
a very special relationship of trust and commitment with the people of India. The
Company's activities in India have facilitated direct and indirect employment and
provides livelihood to about one million people including farmers, suppliers of
packaging materials, services and other goods.

The Company continuously focuses its efforts to better understand the changing
lifestyles of India and anticipate consumer needs in order to provide Taste,
Nutrition, Health and Wellness through its product offerings. The culture of
innovation and renovation within the Company and access to the Nestlé Group's
proprietary technology/Brands expertise and the extensive centralized Research
and Development facilities gives it a distinct advantage in these efforts. It helps the
Company to create value that can be sustained over the long term by offering
consumers a wide variety of high quality, safe food products at affordable prices.

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Nestlé India manufactures products of truly international quality under internationally famous
brand names such as

NESCAFÉ, MAGGI, MILKYBAR, MILO, KIT KAT, BAR-ONE, MILKMAID and NESTEA

and in recent years the Company has also introduced products of daily consumption and use
such as

NESTLÉ Milk, NESTLÉ SLIM Milk, NESTLÉ Fresh 'n' Natural Dahi and NESTLÉ Jeera Raita.

Nestlé India is a responsible organization and facilitates initiatives that help to improve the
quality of life in the communities where it operates

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.Amul (AMUL means "priceless" in Sanskrit. The brand name "Amul," from the Sanskrit
"Amoolya," was suggested by a quality control expert in Anand.), formed in 1946, is
a dairy cooperative in India. It is abrand name managed by an apex cooperative organisation,
Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF), which today is jointly owned
by some 2.8 million milk producers in Gujarat, India.

AMUL is based in Anand, Gujarat and has been an example of a co-operative organization's
success in the long term. It is one of the best examples of co-operative achievement in the
developing economy. "Anyone who has seen ... the dairy cooperatives in the state of Gujarat,
especially the highly successful one known as AMUL, will naturally wonder what combination
of influences and incentives is needed to multiply such a model a thousand times over in
developing regions everywhere." The Amul Pattern has established itself as a uniquely
appropriate model for rural development. Amul has spurred the White Revolution of India,
which has made India the largest producer of milk and milk products in the world. It is also the
world's biggest vegetarian cheese brand .

Amul is the largest food brand in India and world's Largest Pouched Milk Brand with an annual
turnover of US $1050 million (2006-07). Currently Unions making up GCMMF have 2.8 million
producer members with milk collection average of 10.16 million litres per day. Besides India,
Amul has entered overseas marketssuch as Mauritius, UAE, USA, Bangladesh, Australia,
China, Singapore, Hong Kong and a few South African countries. Its bid to
enter Japanese market in 1994 did not succeeded, but now it has fresh plans entering the
Japanese markets. Other potential markets being considered include Sri Lanka.

Dr Verghese Kurien, former chairman of the GCMMF, is recognised as a key person behind the
success of Amul. On 10 Aug 2006 Parthi Bhatol, chairman of the Banaskantha Union, was
elected chairman of GCMMF.

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Dabur India Ltd is one of India’s leading FMCG Companies with Revenues of about US$600
Million (over Rs 2834 Crore) & Market Capitalisation of over US$2.2 Billion (close to Rs
10,000 Crore). Building on a legacy of quality and experience for over 125 years, Dabur is
today India’s most trusted name and the world’s largest Ayurvedic and Natural Health
Care Company.

Dabur India is also a world leader in Ayurveda with a portfolio of over 250 Herbal/Ayurvedic
products. Dabur's FMCG portfolio today includes five flagship brands with distinct brand
identities -- Dabur as the master brand for natural healthcare products, Vatika for premium
personal care,Hajmola for digestives, Réal for fruit juices and beverages and Fem for fairness
bleaches and skin care products.

Dabur today operates in key consumer products categories like Hair Care, Oral Care, Health
Care, Skin Care, Home Care and Foods. The company has a wide distribution network,
covering over 2.8 million retail outlets with a high penetration in both urban and rural markets.

Dabur's products also have a huge presence in the overseas markets and are today available in
over 60 countries across the globe. Its brands are highly popular in the Middle East, SAARC
countries, Africa, US, Europe and Russia. Dabur's overseas revenues stands at over Rs 500
Crore in the 2008-09 fiscal, accounting for about 20% of the total turnover.

The 125-year-old company, promoted by the Burman family, had started operations in 1884 as
an Ayurvedic medicines company. From its humble beginnings in the bylanes of Calcutta, Dabur
India Ltd has come a long way today to become one of the biggest Indian-owned consumer
goods companies with the largest herbal and natural product portfolio in the world.
Overall, Dabur has successfully transformed itself from being a family-run business to
become a professionally managed enterprise. What sets Dabur apart from the crowd is its
ability to change ahead of others and to always set new standards in corporate governance &
innovation.

24
Cadbury is a leading global confectionery company with an outstanding portfolio of chocolate,
gum and candy brands. It employs around 50,000 people and have direct operations in over 60
countries, selling our products in almost every country around the world.
In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of
existence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune) and
Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi,
Mumbai, Kolkota and Chennai). The corporate office is in Mumbai.

Its core purpose "creating brands people love" captures the spirit of what it is trying to achieve as
a business. It collaborates and works as teams to convert products into brands. Simply put, it
spreads happiness!

Currently Cadbury India operates in four categories viz. Chocolate Confectionery, Milk Food
Drinks, Candy and Gum category. In the Chocolate Confectionery business, Cadbury has
maintained its undisputed leadership over the years. Some of the key brands are Cadbury Dairy
Milk, 5 Star, Perk, Éclairs and Celebrations. Cadbury enjoys a value market share of over 70% -
the highest Cadbury brand share in the world! Its flagship brand Cadbury Dairy Milk is
considered the "gold standard" for chocolates in India. The pure taste of CDM defines the
chocolate taste for the Indian consumer.

In the Milk Food drinks segment our main product is Bournvita - the leading Malted Food Drink
(MFD) in the country. Similarly in the medicated candy category Halls is the undisputed leader.
The Company recently entered the gums category with the launch of our worldwide dominant
bubble gum brand Bubbaloo. Bubbaloo is sold in 25 countries worldwide.

Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. For over
two decades, it has worked with the Kerala Agriculture University to undertake cocoa research
and released clones, hybrids that improve the cocoa yield. Its Cocoa team visits farmers and
advises them on the cultivation aspects from planting to harvesting. They also conduct farmers
meetings & seminars to educate them on Cocoa cultivation aspects. Their efforts have increased
cocoa productivity and touched the lives of thousands of farmers. Hardly surprising then that the
Cocoa tree is called the Cadbury tree!

Today, it is poised in their leap towards quantum growth. It is a part of the Cadbury PLC, world's
leading Confectionery Company.

25
The story of one of India's favourite brands reads almost like a fairy tale. Once upon a time, in
1892 to be precise, a biscuit company was started in a nondescript house in Calcutta (now
kolkata) with an initial investment of Rs. 295. The company we all know as Britannia today.

The beginnings might have been humble-the dreams were anything but. By 1910, with the
advent of electricity, Britannia mechanised its operations, and in 1921, it became the first
company east of the Suez Canal to use imported gas ovens. Britannia's business was flourishing.
But, more importantly, Britannia was acquiring a reputation for quality and value. As a result,
during the tragic World War II, the Government reposed its trust in Britannia by contracting it to
supply large quantities of "service biscuits" to the armed forces.

As time moved on, the biscuit market continued to grow… and Britannia grew along with it. In
1975, the Britannia Biscuit Company took over the distribution of biscuits from Parry's who till
now distributed Britannia biscuits in India. In the subsequent public issue of 1978, Indian
shareholding crossed 60%, firmly establishing the Indianness of the firm. The following year,
Britannia Biscuit Company was re-christened Britannia Industries Limited (BIL). Four years
later in 1983, it crossed the Rs. 100 crores revenue mark.

On the operations front, the company was making equally dynamic strides. In 1992, it celebrated
its Platinum Jubilee. In 1997, the company unveiled its new corporate identity - "Eat Healthy,
Think Better" - and made its first foray into the dairy products market. In 1999, the "Britannia
Khao, World Cup Jao" promotion further fortified the affinity consumers had with 'Brand
Britannia'.

Britannia strode into the 21st Century as one of India's biggest brands and the pre-eminent food
brand of the country. It was equally recognised for its innovative approach to products and
marketing: the Lagaan Match was voted India's most successful promotional activity of the year
2001 while the delicious Britannia 50-50 Maska-Chaska became India's most successful product
launch. In 2002, Britannia's New Business Division formed a joint venture with Fonterra, the
world's second largest Dairy Company, and Britannia New Zealand Foods Pvt. Ltd. was born. In
recognition of its vision and accelerating graph, Forbes Global rated Britannia 'One amongst the

26
Top 200 Small Companies of the World', and The Economic Times pegged Britannia India's 2nd
Most Trusted Brand.

Today, more than a century after those tentative first steps, Britannia's fairy tale is not only going
strong but blazing new standards, and that miniscule initial investment has grown by leaps and
bounds to crores of rupees in wealth for Britannia's shareholders. The company's offerings are
spread across the spectrum with products ranging from the healthy and economical Tiger biscuits
to the more lifestyle-oriented Milkman Cheese. Having succeeded in garnering the trust of
almost one-third of India's one billion population and a strong management at the helm means
Britannia will continue to dream big on its path of innovation and quality. And millions of
consumers will savour the results, happily ever after.

27
MTR Foods Private Limited is amongst the top five processed food manufacturers in India. They
manufacture, market and export a wide range of packaged foods to global markets that include
USA, UK, Australia, New Zealand, Malaysia, Singapore, UAE, Japan and Oman.

Starting with the legendary MTR restaurant in Bangalore, India’s silicon valley, they now offer
''complete meal solutions'. Their wide range of products include ready-to-eat curries and rice,
ready-to-cook gravies, frozen foods, ice cream, instant snack and dessert mixes, spices and a
variety of accompaniments like pickles and papads.

Their deep understanding of culinary expectations and needs has resulted in many new and
innovative products. Their investments in infrastructure and technology ensure that they can
scale rapidly and bring these to market. Today, consumers across the globe count on them to
bring them all-natural, wholesome and delicious food that is also convenient and no-fuss.

28
29
India’s Food Processing industry is one of the largest industries in the country - it is ranked fifth
in terms of production, consumption, export and expected growth. The Indian food industry is
estimated to be worth over US$ 200 billion and is expected to grow to US$ 310 billion by 2015.
India is one of the world’s major food producers but accounts for only 1.7 per cent (valued at
US$ 7.5 billion) of world trade in this sector – this share is slated to increase to 3 per cent (US$
20 billion) by 2015. The Indian food processing industry is estimated at US$ 70 billion. It
contributed 6.3 per cent to India’s GDP in 2003 and had a share of 6 per cent in the total
industrial production. The industry employs 1.6 million workers directly.
Food processing is a large sector that covers activities such as agriculture, horticulture,
plantation, animal husbandry and fisheries. It also includes other industries that use agriculture
inputs for manufacturing of edible products.
The Ministry of Food Processing, Government of India has defined the following segments
within the Food Processing industry:
• Dairy, fruits & vegetable processing
• Grain processing
• Meat & poultry processing
• Fisheries
• Consumer foods including packaged foods, beverages and packaged drinking water.
While the industry is large in terms of size, it is still at a nascent stage in terms of development.
Out of the country’s total agriculture and food produce, only 2 per cent is processed. The highest
share of processed food is in the Dairy sector, where 37 per cent of the total produce is
processed, of which 15 per cent is processed by the organised sector. Primary food processing
(packaged fruit and vegetables, milk, milled flour and rice, tea, spices, etc.) constitutes around 60
per cent of processed foods. It has a highly fragmented structure that includes thousands of rice-
mills and hullers, flour mills, pulse mills and oil-seed mills, several thousands of bakeries,
traditional food units and fruits, vegetable and spice processing units in unorganised sector. In
comparison, the organised sector is relatively small, with around 516 flour mills, 568 fish
processing units, 5,293 fruit and vegetable processing units, 171 meat processing units and
numerous dairy processing units at state and district levels.

30
Segment -wise Analysis

Dairy Sector
India stands first in the world in terms of milk production .The output is expected to be about
108 million tonnes (estimate for 2007), growing at a compounded annual growth rate of 4 per
cent. Consumption of milk has registered a growth of nearly 8.4 per cent (in urban areas) and is
currently valued at US$ 16 billion. The dairy sector ranks first in terms of processed foods with
37 per cent of the produce being processed. The organised sector processes an estimated 15 per
cent of the total milk output in India. There are 676 dairy plants registered with Government of
India, which come under the organised sector. Milk and milk products contribute to a significant
17 per cent of the country’s total expenditure on food. Traditional dairy products account for
about 50 per cent of the total milk produced. The market for dairy products is expected to grow
at 15-20 per cent over the next three years.
• Ghee is the most widely marketed and branded product with a nation-wide penetration of 24.1
per cent. It is estimated to be growing at a rate of 8 per cent per annum

• The dairy whitener market comprises of sweetened milk powders, condensed milk and
creamers. Its market size is estimated at US$ 450 million.
• The cheese market is estimated at US$ 2.49 million for (54000 tonnes in volume terms),
growing at a rate of nearly 10 per cent per annum. The organized cheese market is dominated by
processed cheese which accounts for 74 per cent market share
• The ice-cream market in India is estimated at US$ 226 million, with the organized market at
US$ 158.2 billion. This is currently growing at 20 per cent

31
Fruits and Vegetables

India produces the widest range of fruits and vegetables in the world. It is the second largest
vegetable and third largest fruit producer accounting for 8.4 per cent of the world’s food and
vegetable production. The share of organised sector in fruit processing is estimated to be nearly
48 per cent. Fruit production in India registered a growth of 3.9 per cent during the period
whereas the fruit processing sector grew several times faster at 20 per cent over the same period.
The total area under fruit cultivation is estimated at 4.18 million hectares. The total area under
vegetable cultivation is estimated at 7.59 million hectares. However less than 2 per cent of the
total vegetables produced in the country are commercially processed, as compared to nearly
70 per cent in Brazil and 65 per cent in USA. India’s installed capacity for fruits and vegetable
processing nearly doubled during the , from 1.1 million tonnes in to 2.33 million tonnes . About
20 per cent of processed fruits and vegetables are exported. Major products exported include
fruit pulps, pickles, chutneys, canned foods, concentrated pulps and juices and vegetables. Fruit
exports have registered a growth of 16 per cent in volume and 25 per cent in value terms. Mango
and mango based products alone constitute 50 per cent of the exports.

Grain Processing
India produced nearly 209.32 million tonnes of grains. India’s production covers all major grains
– rice, wheat, maize, barley and millets like jowar, bajra and ragi. It ranks third in the production
of grains in the world. With a share of 40 per cent, grain processing is the biggest component of
food sector. Primary processing constitutes 96 per cent with the remaining accounted for by the
secondary and tertiary sectors.
Total rice milling capacity in the country is 186 million tonnes. There are about 516 large flour
mills in the country, as well as about 10,000 pulse mills.

Meat and Poultry Processing

India has the largest number of livestock population in the world accounting for 50 per cent of
buffaloes and 16 per cent of the goat population. Meat production grew at a CAGR of 34 per
cent during the period 1999-2004 and stood at US$ 12.44 million in 2005-06. Meat exports stood

32
at US$ 0.104 million in 2005-06. Most of the animals in India are not bred for meat. Animals
generally used for production of meat are cattle, buffaloes, sheep, pigs and poultry. Only 11 per
cent of the buffalo population, 6 per cent of the cattle, 33 per cent of the sheep and 38 per cent of
the goat population is culled for meat. Consumption per head of both fresh and processed meat is
very low at 1.5 kg compared with world average of 35.5 kg. Indian poultry meat market was
approximately US$ 2.03 billion in 2005. Indian broiler industry has seen a rapid growth in the
last few years - CAGR of more than 10 per cent a year since 1998.

Fisheries
India is the third largest fish producer in the world and second in in-land fish production. The
Fisheries sector
in India has been classified into marine, inland and aquaculture. The fisheries sector contributes
1.1 per cent to
the country’s GDP. This segment also provides employment to 11 million people engaged fully,
partially or in subsidiary activities pertaining to the sector. India’s fish production stood at a level
of 6.4 million tons in 2004-05. Of this, about 60 per cent (3.9 million tons) came from marine
resources. Currently fish processing is mostly
targeted for export markets. There are over 369 freezing units with a daily processing capacity of
10,266 tonnes and 499 frozen storage units with a capacity of 134,767 tonnes. Processed fish
product exports include conventional block frozen products, individual quick frozen products
and minced fish products like fish sausage, cakes, cutlets, pastes etc. Export of marine fish
products touched of US$ 1.48 billion during 2004-05. Exports showed an increase of 11.97 per
cent in volume and 11.1 per cent in value realisation. Frozen shrimp is the largest item in terms
of value contributing to 63.5 per cent of the total exports, and frozen fish is the largest in terms
of volume contributing to 34.62 per cent.

Consumer Foods Including Packaged foods, Beverages and Packaged Drinking Water
Packaged Foods
Packaged foods segment in India registered a growth of 8 per cent in 2005-06.
Noodles/Vermicelli is the fastest growing category in this segment with a CAGR at 15 per cent.
The market for branded noodles is estimated at 230 million servings per year. The Soups market

33
is still small and nascent in India and is approximately US$ 14 million in value. The market for
culinary products is estimated at US$ 475,000 and estimated to grow at 18 to 20 per cent per
annum. Products like Tomato Ketchup and Jams currently have low penetration levels, but are
growing rapidly. Ketchups, for example, have a penetration of just 3 per cent in India; however
this category is estimated to be growing at 20 per cent per annum.

Beverages
The beverages market primarily consists of non-alcoholic beverages which can be broadly
classified into carbonated drinks, non-carbonated drinks and hot beverages. This segment is
estimated at US$ 155 million out of which fruit juices and fruit-based drinks account for US$ 60
million. The market size of organised carbonated drinks is estimated at US$ 119 million. In the
past decade the carbonated drinks market registered a healthy growth rate of 20 per cent, driven
by the positive changes in India’s consumer profile. Hot beverages include health drinks such as
white beverages (‘Horlicks’ etc) and brown beverages such as tea/coffee as well as branded
drinks (Eg: ‘Boost’). The total size of this market is estimated at US$ 333 million by value and
85,000 tonnes by volume. White beverages account for 65 per cent of the market and brown
beverages constitute the remaining 35 per cent India is the largest producer of tea in the world
accounting for 28 per cent of the total global production, at 857 million kgs. Tea production in
India has been growing at 1.2 per cent per annum and India is the fourth largest exporter of tea in
the world with estimated exports of US$ 5 million in 2002-03. India is also the fifth largest
producer of coffee accounting for 4 per cent of the total production in the world. Nearly 75 per
cent of India’s production is exported and coffee exports stood at US$ 5.2 million in 2005-06.

Staples – Bread, Wheat Flour, Salt and Sugar

Bread is slowly coming to be a staple product consumed by people of all economic classes in
India. Total bread production in the country in 2004-05 was estimated at 2.7 million tons,
growing at 7.5 per cent. About 55 per cent of bread production comes from the organised sector.
India is the second largest producer of wheat in the world with an output of more than 70 million
tonnes. Branded ‘atta’ (wheat flour) is an important item in this segment with an estimated
market of US$ 195 million.

34
India’s Strengths in Food Processing

Favourable Factor Conditions

India has access to several natural resources that provides it a competitive advantage in the food
processing sector. Due to its diverse agro-climatic conditions, it has a wide-ranging and large
raw material base suitable for food processing industries. Presently a very small percentage of
these are processed into value added products. The semi-processed and ready to eat packaged
food segment is relatively new and evolving. India has the largest irrigated land in the world. It is
also world’s largest producer of milk, tea and pulses. India has large marine product and
processing potential with varied fish resources along the 8,041 km coastline, 28,000 km of rivers
and millions of hectares of reservoirs and brackish water. India also possesses the largest
livestock population in the world with 50 per cent of world’s buffaloes and 20 per cent of cattle.
India’s comparatively cheaper workforce can be effectively utilised to set up large low cost
production bases for domestic and export markets. Cost of production in India is lower by about
40 per cent over a comparable location in EU and 10-15 per cent over a location in UK. Along
with these factor conditions, India has access to significant investments to facilitate food
processing industry. There have been increasing investments not only by domestic firms and
Indian government, but also foreign direct investment

Related and Supporting Industries

The Indian food processing industry has significant support from the well developed R&D and
technical capabilities of Indian firms. India has a large number of research institutions like
Central Food Technological Research Institute, Central Institute of Fisheries Technology,
National Dairy Research Institute, National Research and Development Centre etc. to support the
technology and development in the food processing sector in India.

35
Government Regulations and Support

The Government of India has taken several iniatives to develop the food processing industry in
India. One indication of the importance that the sector receives is the hiking of the present outlay
for the sector from US$ 19.5 million in 2004-05 to US$ 41.35 million the next year, more than
twice the earlier amount. The government has been developing agri-zones and the concept of
mega food parks to promote food processing industry in India. It is considering investing US$
22.97 million in at least 10 mega food parks in the country besides working towards offering 100
per cent foreign direct investment and income tax benefits in the sector. In order to promote
investment in the food processing sector, several policy initiatives have been taken during recent
years. The national policy aims to increase the level of food processing from 2 per cent to 10 per
cent in 2010 and to 25 per cent in 2025.
Some of the initiatives include:

• The level of institutional credit to be provided by banks and FIs has been increased from US$
17.41 billion during 2003-04 to about US$ 23.76 billion in 2005-06
• Allowing full repatriation of profits and capital

• Automatic approvals for foreign investment up to 100 per cent, except in few cases, and also
technology transfer

• Zero duty import of capital goods and raw material for 100 per cent export-oriented units.
Customs duty on packaging machines reduced. Central excise duty on meat, poultry and fish
reduced to 8 per cent

• Income tax rebate allowed (100 per cent of profits for 5 years and 25 per cent of profits for the
next 5 years) for new industries in fruits and vegetables besides institutional and credit support

• Allowing sales up to 50 per cent in domestic tariff area for agro-based, 100 per cent export
oriented units

• Government grants given for setting up common facilities in Agro Food Park.

36
• Full duty exemption on all imports for units in export processing zones.

The liberalised overall policy regime, with specific incentives for high priority food processing
sector, provides a very conducive environment for investments and exports in the sector.

Investments Required in the Food Processing Sector

India requires an investment of US$ 28 billion to bring the level of processing to 10-12 per cent
by 2012.
The following areas of investment have been identified by the Ministry of Food Processing:

• Mega food parks

• Agri-infrastructure and supply chain integration

• Logistics and cold chain infrastructure

• Fruit and vegetable products

• Animal products, meat and dairy

• Fisheries and sea food

• Cereals, consumer foods and ready-to-eat foods

• Wine and beer

• Machinery and packaging

37
Critical Success Factors for Manufacturers in this Sector
The Indian food processing industry’s growth potential cannot be disputed; however, it requires
certain competencies and success factors to fructify this potential.These include addressing the
current gaps in the value chain as well as leveraging on the various advantages the country
provides. Investors in the sector need to be aware of these factors and build the required
capabilities in their business to ensure success. Some of the key success factors are discussed
below.

Integrated Supply Chain and Scale of Operations

While India ranks second in production of fruits & vegetables, nearly 20 to 25 per cent of this
production is lost in spoilage in various stages of harvesting. The key issues are poor quality of
seeds, planting material and lack of technology in improving yield. Ensuring good quality
produce entails investments in technology and ability to sustain a long gestation period for the
harvest. Good quality production also results in better quality of processed fruits. Hence there is
a need to establish backward linkages with the farmers with the help of arrangements such as
contract farming to improve the quality of the produce. Scale is a key factor in the processing
industry. Nearly 90 per cent of the food processing units are small in scale and hence are unable
to exploit the advantages of economies of scale. This is also true with land holdings. The country
has only 3600 slaughterhouses, 9 modern abattoirs and 171 meat processing units, and a limited
number of pork-processing units. This is one of the reasons penetration of processed meat is
extremely poor at 1 per cent in India. These figures indicate both the need for scale, and the
potential for growth offered by the sector.

Processing Technology
Most of the processing in India is currently manual. There is limited use of technology like pre-
cooling facilities for vegetables, controlled atmospheric storage and irradiation facilities. This
technology is important for extended storage of fruits and vegetables in making them conducive
for further processing. In the case of meat processing, despite the presence of over 3600 licensed
slaughter-houses in India, the level of technology used in most of them is limited, resulting in
low exploitation of animal population. Bringing in modern technology is an area that existing as

38
well as new investors in the sector can focus on, this will make a clear difference in both process
efficiencies as well as quality of the end product.

Increasing Penetration in Domestic Market

Most of the processing units are export oriented and hence their penetration levels in the
domestic market are low. For example,
• Penetration of processed fruits and vegetables overall is at 10 per cent
• The relative share of branded milk products especially ghee is still low at 2 per cent
• Penetration of culinary products is still 13.3 per cent and is largely tilted towards metros
• Consumption of packaged biscuits for Indian consumers is still low at 0.48 per cent while that
for Americans is 4 per cent.
However, there is increasing acceptance of these products amongst the urban population. India
has a large untapped customer base and even a small footprint in the domestic market would
enable the player to gain significant volumes. The Indian food processing industry’s growth
potential cannot be disputed; however, it requires certain competencies and success factors to
fructify this potential. These include addressing the current gaps in the value chain as well as
leveraging on the various advantages the country provides. Investors in the sector need to be
aware of these factors and build the required capabilities in their business to ensure success.
Some of the key success factors are discussed below.
Integrated Supply Chain and Scale of Operations
While India ranks second in production of fruits & vegetables, nearly 20 to 25 per cent of this
production is lost in spoilage in various stages of harvesting. The key issues are poor quality of
seeds, planting material and lack of technology in improving yield. Ensuring good quality
produce entails investments in technology and ability to sustain a long gestation period for the
harvest. Good quality production also results in better quality of processed fruits. Hence there is
a need to establish backward linkages with the farmers with the help of arrangements such as
contract farming to improve the quality of the produce.
Scale is a key factor in the processing industry. Nearly 90 per cent of the food processing units
are small in scale and hence are unable to exploit the advantages of economies of scale. This is
also true with land holdings. The country has only 3600 slaughterhouses, 9 modern abattoirs and
171 meat processing units, and a limited number of pork-processing units. This is one of the

39
reasons penetration of processed meat is extremely poor at 1 per cent in India. These figures
indicate both the need for scale, and the potential for growth offered by the sector.
Processing Technology
Most of the processing in India is currently manual. There is limited use of technology like pre-
cooling facilities for vegetables, controlled atmospheric storage and irradiation facilities. This
technology is important for extended storage of fruits and vegetables in making them conducive
for further processing. In the case of meat processing, despite the presence of over 3600 licensed
slaughter-houses in India, the level of technology used in most of them is limited, resulting in
low exploitation of animal population.
Bringing in modern technology is an area that existing as well as new investors in the sector can
focus on, this will make a clear difference in both process efficiencies as well as quality of the
end product.
Increasing Penetration in Domestic Market
Most of the processing units are export oriented and hence their penetration levels in the
domestic market are low. For example,
• Penetration of processed fruits and vegetables overall is at 10 per cent
• The relative share of branded milk products especially ghee is still low at 2 per cent
• Penetration of culinary products is still 13.3 per cent and is largely tilted towards metros
• Consumption of packaged biscuits for Indian consumers is still low at 0.48 per cent while that
for Americans is 4 per cent However, there is increasing acceptance of these products amongst
the urban population. India has a large untapped customer base and even a small footprint in the
domestic market would enable the player to gain significant volumes.

Segment-wise Attractiveness of Processed Foods

India presents several potential growth areas in the food processing sector. Based on our
assessment of the potential growth opportunities and the enabling environment in terms of policy
support, three key segments have been identified that indicate high attractiveness.

40
These are discussed below:
Mass market basic foods – Fruits & Vegetables , Poultry, Meat and Fisheries Fruits and
Vegetables Segment
Several factors make the fruits and vegetables sector in India attractive from a market size and
growth perspective. As mentioned, India is a significant producer of fruits in the world,
contributing to 10 per cent of global production. The fruits and vegetables sector is growing
rapidly at a healthy rate of 20 per cent per annum. It is however nascent, with penetration level of
about 10 per cent. These factors indicate the high growth potential in the sector. This is also
highly unorganized at present, with the unorganised sector at 48 per cent share, indicating the
scope for organised players to make an impact. Several policy measures have been undertaken
by the Government to create the right stimulus for growth in this sector. Some of the key
initiatives include:
• Foreign equity participation up to 51 per cent allowed. Initiatives like post-harvest
management, logistics given priority in attracting FDI
• Complete exemption from excise duty
• Income tax rebate of nearly 100 per cent of profits for new industries in fruits and vegetables
sector
• Many fruits and vegetables processing industries eligible for automatic approval of technology
upgradation
Meat, Poultry and Fisheries Segment
The meat, poultry and fisheries segment is another high potential area that has the advantage of
several favorable factor conditions. In terms of raw material, India has the best supply of
livestock in the world, accounting for 50 per cent of buffaloes and 16 per cent of the goat
population. India also ranks third in the world in production of fisheries. As mentioned earlier,
the bulk of the livestock is not bred for slaughter.
There is a large potential for setting up modern slaughter facilities and development of cold
chains in meat and poultry processing sector. In the fisheries segment also, India’s long coastline
and network of inland waterways and lakes, offers plentiful availability of different types of
fishes.
Fishery resources in India are seriously under-utilised. The Government has also taken up several
initiatives to encourage investment and growth in this segment.

41
These include:
• Foreign Equity participation allowed in the fisheries sector subject to approval. Foreign
investment proposals on nearly US$ 210 million have been approved in the sector
• Financial assistance given for setting up of processing infrastructure like IQF plants,
refrigerating transport equipment, freezing plants
• Excise duty on meat poultry and fisheries reduced from 16 per cent to 8 per cent
Mass Market Value-Added Products- Dairy, Bakery
India is the world’s largest milk producer and dairy is the one of the most promising segments of
food processing. Demand for dairy products is expected to grow at a healthy rate of 15 to 20 per
cent over the next five years. The segment offers a high potential for value add – the level of
processing value add, at 37 per cent, is amongst the highest in the food processing industry. At
the same time the share of organised players is still small, at 15 per cent, indicating the potential
for growth for organised players. Bakery products is a related segment that has also been
growing strongly, at about 7.5 per cent. The segment is still highly fragmented, though organised
players have nearly 55 per cent share of output.
Both these segments, while indicating attractive growth potential, have also been focus areas for
policy support by the government.
• Foreign equity participation permitted to the extent of 51 per cent in dairy processing sector
• De-reservation of many segments like ice-cream and ghee from small-scale industries
• Excise duty of 16 per cent on dairy processing machinery fully waived for promotion of dairy
processing
• Subsequent to decanalisation, exports of some milk based products are freely allowed provided
these units
comply with the compulsory inspection requirements of concerned agencies like the National
Dairy Development Board, Export Inspection Council, etc.

Niche Market Foods - Snack Foods, Ready-to-Make Foods, Packaged Foods

This business is characterised by high volumes and low margins. Penetration levels are yet quite
low in this segment, with product acceptance largely restricted to the urban population. Product
innovation and branding play a key role in success of these products. As such, this segment could

42
be an attractive option for multinational companies with established brands and strengths in
innovation, to enter and get established in India.
The Government has been supporting this segment through policy initiatives such as:
• Automatic approval of foreign equity participation up to 51 per cent
• Income tax rebate of 100 per cent of profit for five years and 25 per cent of profits for the next
year for packaging of foods.

Backward Integration – Emerging Business Model

The generic value chain of the food processing industry from raw materials to retail to the
consumer, is shown below. Traditionally, different players across the value chain played the
different roles and worked more or less independently. Recently, the trend has been towards
increasing integration and collaboration across players in the value chain, to garner mutual
benefits. Such integration is being driven by the manufacturers, who are looking to integrate
backward and establish linkages with both raw material producers (farmers) and
aggregators/logistics providers. These links have led to two new models emerging in the sector –
Contract Farming and Terminal Markets.
These are further discussed below.
Contract Farming
Contract Farming is an agreement between the food processor (contractor), who is typically a
large organized player, and the farmer, whereby the farmer is contracted to plant the contractor’s
crop on his land. He also agrees to harvest and deliver to the contractor a quantum of produce,
based upon anticipated yield and contracted acreage at a pre-agreed price. The food processor
provides inputs in terms of technology and training to the farmer, to improve the yield and
quality of the produce. This results in a win-win situation that generates a steady source of
income for the farmer and eliminates supply shocks and assures good quality farm inputs which
are crucial for the processor. The Government of India has been actively encouraging contract
farming endeavours. The National Agricultural Policy envisages that ‘private sector participation
will be Inputs Contract Farming The farmer is contracted to farm on his land and the produce of
an agreed yield and quality is bought by the processor at an agreed price Terminal Markets
Jointly participate through investments in a one-stop modern market offering grading, sorting,
electronic auctioning, quality testing, cold storage and banking facilities.

43
FOOD Processing
Encouraged through contract farming and land leasing arrangements to allow accelerated
technology transfer, capital inflow and assured market for crop production’

Successful Contract Farming in India

A good example in this area has been Pepsi Foods’ experience with contract farming for its
tomato processing plant at Hoshiarpur in Punjab. Through transfer of technology and providing
good quality seeds and inputs to farmers, Pepsi was able to substantially increase both quality
and quantity of tomato production in the area, so as to meet the demands of its plant. A key
aspect of Pepsi’s approach was its partnership with local bodies such as the Punjab Agricultural
University and Punjab Agro Industries Corporation Limited, which went a long way in getting
the farmers’ buy-in and ensuring success of the venture.
Terminal Markets
A Terminal market is a central site, often in a metropolitan area, that serves as an assembly and
trading place for agricultural commodities. Here there are different options for disposing off the
produce. It can either be sold to the end consumer, or to the processor, or packed for export, or
even stored for disposal at a future date. It thus offers different options to farmers under a single
roof. Typically, terminal markets operate on a hub and spoke model where the markets form the
hubs, and are linked to different collection centres (spokes) that are located close to the
production centres. The typical value chain structure for a terminal market, as well as the key
activities and corresponding infrastructure requirements at each level, are depicted in the figure
below:
The Government of India is looking to promote terminal markets, as a means of integrating
domestic produce with retail chains. There are plans to set up such markets in eight cities across
five states, at a cost of US$ 131 million. The cities being considered are Mumbai, Nashik,
Nagpur, Chandigarh, Rai,Patna, Bhopal and Kolkata.

44
45
India has made lot of progress in agriculture & food sectors since independence in terms of
growth in output, yields and processing. It has gone through a green revolution, a white
revolution, a yellow revolution and a blue revolution. Today, India is the largest producer of
milk, fruits, cashew nuts, coconuts and tea in the world, the second largest producer of wheat,
vegetables, sugar and fish and the third largest producer of tobacco and rice.

Now the time is to provide better food processing & its marketing infrastructure for Indian
industries to serve good quality & safest processed food like ready to eat food. It is opening a
new window in world scenario as far as taste & acceptance is concerned. Therefore, Indian
Government is providing more infrastructure for this sector. Excise duty is now ZERO % on
RTE and 100 % tax deduction for the first 10 years for new units. This allows manufactures to
bring down their prices & spreads its flavors to the world.

The retort processed foods do not require rehydration or cooking and can be consumed straight
from the pouch with or without pre-warming, depending upon the requirement of the users and
the weather conditions. These foods meet the specific needs of convenience, nutritional
adequacy, shelf stability, storage, distribution to the centers and have become very popular after
the year 2002. Some of the mouth-watering dishes in retort pouches include sooji halwa, upma,
chicken curry, mutton curry, fish curry, chicken madras, chicken kurma, rajma masala, palak
paneer, dal makhnil, mutter paneer, potato-peas, mutter mushroom, vegetable pulav chicken
pulav, and mutton pulav, etc. The pioneer introduction of retorting technology has made the sale
of ‘Ready-to-Eat’ food products commercially viable with great taste.

CONCEPT

• Ready to Eat Meals like already cooked or prepared lunch & dinner are relatively new
products which came in market only a few years back and are now sold through retail
general stores in especially made sealed aluminum laminates.
• The retorting or sterilization process ensures the stability of the Ready-to-Eat foods in retort
pouches, on the shelf and at room temperature. The application of sterilization technology
completely destroys all potentially harmful micro-organisms, thereby making sure that
the food product has a very long shelf life of over 12 months and needed no refrigeration.

• When customer needs to eat, the food item pouch is either put in microwave oven to warm
it or keep in heated water for a few minutes and then serve to eat.

• Such ready to eat meals have been especially given to soldiers in army of many countries
who require carrying their
rations while on war front or while located far away from their main unit.

• The advertisements like, "Hungry Kyaa" are adding zest to the market by popularizing such
food items which are pre-cooked and free from any preservative, and yet have a long
shelf life of over 12-months. These food items are normally selling in pouches, well
packed in cardboard printed boxes of small book size and carry about 300 grams of

46
 cooked food at a price of about Rs. 40 to 200 in foreign market depending upon the type
of dish packed. One packet of vegetable dish is normally sufficient for one meal for three
persons and therefore falls in economic zone of consumer’s preferences.

WHY READY TO EAT FOOD

• Globalization of Indian food and its culture are the core factors for popularization of
ready to eat foods.
• Main motivation for these ready to eat foods is fast growing foreign market.
• Retail outlet culture is now growing rapidly in India.
• Shelf- life of these foods are at least 12-18 months.
• Quality, Taste and Flavor of these foods remains as good as fresh up to the expiry date.
• Women wanting to spend more time out of the kitchen.
• More working bachelors staying away from homes.
• Cost effective in comparison to the Indian cuisine served by the restaurants in foreign
countries.

TYPES OF READY TO EAT FOOD

Veg Food Non Veg Food
Alloo Matar Chicken Curry
Palak paneer Butter Chicken
Sarso Ka Saag Karahi Chicken
Chana Masala Mughalai Chicken
Kadi Pakora Mutton Masala
Cheese Tomato Mutton Korma
Dal Makhani Karahi Mutton
Rajma Masala Mutton Biryani

Deserts
Gajar Ka Haluaa / Sugi Ka Haluaa / Milk Kheer

PLAYERS IN READY TO EAT FOOD

• MTR
• Kohinoor Foods
• ITC
• Haldiram
• Tasty Bites

RETORT & ITS PACKAGING

The water RETORT is an equipment or vessel or sterilization module through which steam (at
130 degree centigrade for 25 minutes) is applied on food products packed in retort pouches.

The retorts use water or steam/air combination as processing medium to heat the
container/packages. Compressed air or additional steam is introduced during the processing cycle

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to provide the overpressure (any pressure supplied to the retort in excess of that which can be
normally achieved under steam at any given retort temperature). Overpressure is important in
preventing package damage or loss of seal integrity (like bursting), during the heating process.

Retort pouches is a flexible packaging material that basically consist of laminates or bounded
layers of different packaging films of Polyster-Nylon-Aluminium-polypropylene that can
withstand high process temperature & pressure.

Their most important feature is that they are made of heat-resistant plastics unlike the usual
flexible pouches. This makes the retort pouches unique which are suitable for the processing of
food contents at temperatures around 120 degrees Celsius. That is the kind of ambient
temperature prevalent in the thermal sterilization of foods.

There is lesser time to spend in cooking food themselves and so ready to eat foods are preferred.
To get the food of different cultures, taste etc, it is important that food has good shelf life so that
it can be made available at far off places too and then can be conveniently consumed also.

ADVANTAGES OF RETORT PACKAGING

• Pouch laminates permits less chance to overcook during the retorting thus products
having better color, texture & less nutrients loss.
• It requires less energy for sterilization.
• It requires less disposal & storage space.
• Low oxygen & moisture permeability.
• Shelf stable for longer time & requires no refrigeration.
• Sun light barrier, light weight, easy to open.

MARKET & ITS GROWTH

• The popularity of ready to eat packed food now is no longer marks a special occasion.
Peoples want value for time, money in terms of quality and variety.
• The food processing industry is one of the largest industries in India and it is the ranked
fifth in terms of Production, Consumption, Export & Expected growth.
• Processed food market in India accounts for 32% that is Rs. 1280 billion or 29.4 billion
US $ in a total estimated market of Rs. 3990 billion or 91.66 US $.
• Euromonitor International, a market research company says that amount of money Indian
spend on ready to eat snacks & food is 5 billion US $ in a year while on abroad Indian or
Indian subcontinents spend 30 billion US $ in a year.
• Ready to eat packaged food industry is over Rs. 4000 crore or 1 billion US $ and it is
growing at the rate of 20 % per annum.
• Ready to eat food market is developing specifically in UK, USA, Canada, Gulf & South
Asian Countries with the growth rate of over 150 % per annum.

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49
For my research the area covered by me was Delhi/NCR and the target group was mainly people
from 25 to 50 years of age. Areas which I covered for my research work are South Delhi, East
Delhi, West Delhi, Gurgaon, Noida and Ghaziabad.

The research was done mainly through questionnaire and the population size was taken about
200.

Outlets which I visited were:

• Big Baazar

• More

• Spencer

• Vishal Mega Mart

• Big Apple

• Reliance Fresh

Malls:

• EDM

• CSM

• Great India Place

• Pacific

• Ansal Plaza

• Shopprix

• Shipra Mall

• City Square

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• Ambience

• V3s

INCOME-CONSUMPTION GRAPH IN READY TO EAT SECTOR

Here I found that the people whose income ranges from 40,000-80,000 are more frequent
buyer of ready to eat food.

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 WEEKLY CONSUMPTION ON AGE BASIS

People of age group 25-35 buy more frequently than any other.

SALES PATTERN OF READY TO EAT FOOD IN VARIOUS FORMATS

The sales of Ready to Eat food is more in Malls than any other formats.

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The main reason why people buy Ready To Eat Food is due to its time saving factor.

After my research I found that the taste and trends of areas in NCR are quite different. The taste
and trends also varies from age group to age group and from profession to profession. The
people in south and west delhi are basically somewhat in higher income group and they don’t
mind going in for packaged foods instead of cooking the food at their home. When I
communicated with them I found that there eating habits are changing as they have less time to
cook food or they have surplus money so their spending habits for these packaged foods is
changing. They don’t mind going for these packaged foods rather than cooking three to four
times a week. So I found that even in the kirana shops which are not of organized retail type have
also stated keeping these kinds of stuffs. When I talked with these kirana shops owner they also
told that the demand of these types of food products are increasing and people asks for different
varieties of package and frozen foods. When I went to the organized retail types like Big Bazaar,
Reliance Fresh etc. I found that they have many racks of these foods as well as different sections
for frozen foods also which included frozen meats, cutlets, fried fishes, soybeans etc. The main
brands I saw in these stores were MTR, ITC and some foreign brands like Kraft foods and

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Campbell. But the people are keen in buying Indian brands. So my conclusion for this area is that
the FMCG companies have a potential market and a dissent customer base for expansion of these
kinds of food items.

When I visited east delhi the trend here was quiet different from which I saw in western and
southern delhi. The people here are mainly middle class or students. When I talked to them I got
an idea that around fifty percent were not aware what is ready to eat foods. The other half of the
population was also preferring to cook the food at their home. There I saw many small eating
outlets supplying foods to these students at much cheaper rate to these students. The income of
people are not that high so they prefer to cook the food at home and not spending much on these
costly food items. When I went to the kirana stores of these areas there also I found that there is
low demand of these products. But in Malls I found that organized retail shops are keeping these
food products. But there sale is low. So my conclusion for this area is that this market area does
not have much potential for these food products and FMCG companies still has a long way to go
ahead.

During my visit to Gurgaon I found that the people are mainly working class and BPO culture
flourishing there. Being in a city where the trend of double income has developed and both
husband and wife are working and busy throughout the day in the office so they are going in for
these packaged foods. The salary package offered by the MNCs are also high so they don’t mind
paying much for their convenience. In BPOs also the timings of Husband and Wife don’t mach
so they alone prefer to buy these foods instead of going for cooking. Talking about the kirana
stores and orgainsed retail of this area I found that they are having a higher sales volumes as
compared to Delhi region because the people here buy these items due to there needs not for
there delight. The fmcg companies here enjoy high volume of sales.

Now coming on to the Noida and Ghaziabad region here I saw a mix bunch of people students,
professionals, business man and higher and middle income people both. The students also are
basically from management and engineering colleges and are of higher spending capacity than
that of east delhi. Leaving behind certain sectors of Noida and Ghaziabad rest all areas this
packaged food is a big hit and shops and kirana stores and organized retail outlets are keeping
every variety and brand of these food items. So I can say that the FMCG companies are not
finding it much difficult in selling these food products.

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55
From my research I found that the main reason for purchase of Ready To Eat food is their time
saving factor. The taste and the nutritional value is not so up to the mark. Also the availability is
limited mainly to the retail outlets in Malls or Big shops. The awareness level to these foods also
is very low, since most of the people were not aware of ready to eat foods. Also since this sector
is heavily dependent upon the agriculture industry so the continuous availability of raw materials
is also a major challenge.

Suggestions for FMCG companies:

1. Increase the visibility of these products in organized retail outlets.

2. Organize sum awareness programs so that mass could know about these products.

3. Increase the variety of the products in Chinese section.

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4. Should try to increase these products so that it can reach every locality and could be
consumed by the masses.

5. Organize some workshops in schools so that children also get to know about these
products.

6. Company may also increase the advertisements.

7. May also launch a new product range for price conscious customers.

Questionnaire

1. Name:
2. Occupation:
3. Monthly Income:
a. less than 10,000
b. 10,000 – 25,000
c. 25,000 – 50,000
d. More than 50,000
4. Address:

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5. Phone no.:

6. If You are not cooking at home what do you prefer?

a. Going To Restaurant
b. Buying Ready to Eat Food
c. Eating at roadside vendor
d. others

7. How many times you go for foods not made at home?

a. Once in a week
b. One to three times a week
c. More than three times a week
d. None

8. What do you see before buying the food items?

a. Taste
b. Price
c. Nutrition Value
d. Others
9. Have you ever had ready to eat foods?
a. Yes
b. No

10. If yes what made you buy these packaged foods?

a. Time saving factor
b. Taste
c. Nutirition value
d. Others

11. Would you want to repeat your buying?

a. Yes
b. No

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 c. Can’t Say

12. Doyou find it fully safe for your children?

a. Yes
b. No

13. Areyou price sensitive buyer?

a. Yes
b. No

14. Are
these foods easily available in your locality?
a. Yes
b. No

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