23 July, 2008 - India's US$3 billion snack food market is set to grow thanks to rising incomes and a booming economy. The organised snack sector accounts for almost half the market share and is expanding at a rate of up to 20% per annum. Imports, though growing quickly, are still marginal at just US$30 million p.a. due to high import duties, a complex distribution network and availability of cheaper domestic products.
Market Summary
The market in India is diverse and large with over 1,000 different snack products and some 300 types of savouries.
Potato-based snacks, and in particular potato chips, are the largest product segment, holding an 85%-share of the salty snack market, followed by snack nuts, chickpeas and other pulse-based savoury snacks.
Organised retail chains have high demand for popcorn, diet snacks (soy nuts, bread sticks), breakfast cereals, baked & roasted snacks (biscuits, specialty breads, chocolate coated snacks, cookies etc.) and cheese snacks.
Health foods, health food supplements and convenient foods are also rapidly growing segments.
The branded and organised snack food sector is forecast annual growth of 15- 20%. Major players in this segment include Frito Lay, Con Agra, Kellogg’s, Marico, Dabur, HLL, ITC, Parle, Haldiram’s, Nestle, Britannia, Cadbury, Bikano and Balaji.
Growth in the un-branded snack food sector, which currently has a slightly larger market share, is much smaller at 8% per year.
Higher overheads mean branded products cost around 15-20% more than their non-branded rivals.
Packaging in the sector is important with the smaller sizes being most popular. Packets range from between 35-40gm up to 400gm.
Import Market
India’s snack food and snack food ingredient import market has trebled between 2002 and 2006 from US$10million to US$30 million – with food items comprising almost 97% of this total. Major exporters include the United States, Malaysia, Indonesia, Thailand, China, Singapore, South Korea, Switzerland, UAE, Australia, UK, Germany, South Africa and Portugal.
The US share of snack food and ingredients exports climbed almost 10-fold from US$570,000 in 2002 to US$5 million last year – while volume increased in the same period from 347 MT to 2,374 MT.
While the value of US salted snacks jumped from US$429,000 in 2002 to US$3 million five years later, its share in total imports of US snack foods declined from 75 to 60% in that time.
Meanwhile, the value of sweet snacks increased from US$141,000 to US$1.82 million in the 2002-07 period - with its share of total U.S. snack food imports growing from 22 to 37%.
US exported snack foods that registered significant growth were:
* potato chips (prepared/preserved)
* confectionery (containing sweetening agent instead of sugar)
* popcorn (microwaveable package & ex seed)
* confectionary sweetmeats (without containing cocoa),
* chewing gum (whether or not sugar coated),
* cookies (sweet biscuits),
* corn chips and similar crisp savoury snacks.
(All Sources: USDA)
The frozen snack food market is limited because of the widespread lack of availability of fridges in the country.
Import Tariffs
These currently range from 30% to 65% for snack foods. Other barriers include detailed food labelling requirements for packaged goods and compulsory detention and laboratory testing of samples of each imported item. All this boosts overhead costs.
Regulations in India mean imported snacks have at least two-thirds of their shelf life remaining on reaching port which is, said one analyst, “a major constraint for the import of snack goods”.
Consumption Behaviour
India’s annual average per capita snack food consumption is 500gm with urban consumption outstripping rural by 10:1. Western India is the top snack consuming region followed by the north.
Thanks to rising disposable incomes, the Indian overall food consumption market is forecast to climb from US$155 billion in 2005 to US$344 billion in 2025 – with compound growth at 4.1%.
A US expert said: “Growing incomes, falling poverty, changing lifestyles and companies racing to capture India’s middle and upper middle class consumers will cause the food market to evolve dramatically in the coming years.”
Opportunities and challenges
An economy growing at over 8%, a burgeoning middle class with expanding purchasing power and a consumer perception that US products are high quality and safe are all positives for foreign companies.
Challenges include the previously mentioned import tariffs, rapid growth of the domestic snack industry and what one analyst described as “dated food laws, unscientific sanitary and phyto-sanitary regulations”.
“Consumers are willing to pay a premium for both value added private and branded products creating immense opportunities for manufacturers and retailers," said a US Government source.
“There is a widespread recognition in India that consumers are likely to replace light meals with snacks.”
Structure of Indian Market
a) Organised Sector
The majority of organised retailers source imports through distributors due to the relatively small number of outlets that exist. Modern practices, such as importers sourcing mixed containers directly from the exporting nation and retailers establishing direct links with importers, are becoming more widespread. Most distributors cover just one major city and the adjoining area.
Imported snack products are confined to traditional outlets in upmarket areas catering to richer consumers.
b) Non-organised Sector
The vast majority of product is sourced from domestic providers, with the share of imports negligible. Where foreign product does appear in the non-organised sector, “a significant share” comes through illegal channels, said one analyst. Imported goods are attractive because they have a 50% higher sales margin compared to domestic products.
Domestic Industry
There is a well-developed and competitive domestic snack industry that offers a diverse range of products. Many foreign companies have established joint food processing operations with Indian partners and offer products that are diverse and cater to regional tastes.