The Hindu Business Line : Food for thought

The taste of India is changing. Our palates are becoming more ‘Westernised’ and we would rather go for the spicy McGrill from McDonald’s than the rolled chapatti as part of our regular diet. It may not be true of all individuals, but such is the trend of our changing food patterns, observed retailers and food industry experts at the recently held Food Forum India 2008.

Food and grocery have become a dominant category in the multilayered retail pie of India, with a sizeable share of 59.5 per cent. The organised retailers are not ignorant of this fact and gathered at the forum to discuss ways to enlarge its scope and profitability. According to the India Food Report released at the forum, food and grocery occupy second position after the clothing and accessories segment at Rs 9,000 crore with 11.5 per cent in the total organised modern retail sector.

Ireena Vittal, Principal, McKinsey & Co, predicted that the $175-billion food industry today is likely to grow to $400 billion by 2025. And this growth will be chiefly driven by a shift in the percentage of incomes spent by households on food products.

“There are 10 million street vendors in India, of which six million only sell food. Food prices in India are the lowest in the world but will increase in the long run, while the prices in most other sectors will fall. The agricultural sector has moved into higher value crops in the last 10-15 years, but there is no direct link between demand and supply and production happens by accident.”

S. S. Chahal, Director, Ministry of Food Processing Industries of India, speaking on behalf of Union Minister of State Subodh Kant Sahai, said, “The multiplier effect of investment in this industry on employment generation is 2.5 times higher than in other industrial sectors. It is encouraging to note that while the country’s GDP growth rate increased from 3.5 per cent in 2002-03 to 9 per cent in 2006-07, the food processing sector had grown from 7 per cent to 13 per cent during the same period.”

To encourage the growth of the sector, the government has proposed 30 mega food park projects to be floated through public private partnership.

Corroborating the government’s view of the sector generating more employment than other sectors, Prof Thomas Reardon of Michigan State University said India’s retail growth is fuelled by massive domestic investments and that the Indian retail market is growing five times its GDP. He was talking at the session on ‘Supermarkets in emerging markets and perishable products procurement, lessons for Indian retailers and suppliers.’ Praveen Dwivedi, Head (Horticulture Business), ITC, stressed that despite the provision of experimenting with various formats in supermarkets, a retailer should be careful to adopt a model in which all stakeholders can survive.

Talking about the food value chain, Abhijit Malkani, Director, ProLogis India, said the main hurdle for retailers was the lack of logistics such as infrastructure, despite the availability of knowledge. “China is one example whose success is coming from logistical infrastructure,” he cited.

In the session India Food Vision 2020, speakers observed that the Indian diet was becoming increasingly Westernised. S. Dave, Director, Agricultural and Processed Food Products Export Development Authority, pointed to the shift in consumer behaviour in the past five years. “The retail stores need to empower their stakeholders and deliver what the consumer wants. The vision for 2020 should be appropriate extension network, implementation of appropriate practice at farmers’ level and infrastructure in the country.” He added that implementation of policies should be done by the private sector and they have to take the role of holding the farmers’ hands.

Kishore Biyani, Chief Executive Officer, Future Group, on this issue said, “We are retailers, our job is to buy and sell. For rural uplift, the government should implement all its policies in totality.” He added that food retailing has been glamorised — the margins are lower than what was expected. At the same time, they have not seen any slowdown in the demand for food products, he told press persons on the sidelines of the Food Forum.

“Retailers have not been affected by inflation. At that time, we gave discounts of 20 per cent in the food products, which drove our volumes up. We will touch 100 Big Bazaar stores in July and plan to list Future Ventures. However, we see the most robust sales coming from the electronic goods segment.”

Retailers took centre-stage more than once at the sessions, as they are perceived as the biggest growth drivers of the modern food industry. But their growth has to take place in collaboration with the FMCG product manufacturers who can deliver what the consumers want. A debate regarding who was the greater sales-pusher in modern retail at the forum helped bring out the expectations of the two key players on the last day of the conclave.

While the retailers harped on not having enough supplies on their shelves at any given point of time, the brands argued that the retailers only focused on higher margins, ignoring the brands that drive their sales. “The retailers should try and increase their footfalls. We are there to be grabbed, but there have to be innovative promotions for the customers to see our brands and pick us up,” said Uday Shankar Sinha, Executive Director - West Market Unit, Pepsico International.

He explained that it was not required to decrease the price on a PET bottle of Pepsi to drive sales, but to do it intelligently by packaging six together and decreasing the price on the whole. Damodar Mall, Chief Executive Officer, Innovation and Incubation, Future Group, said, “We are doing enough promotions to attract customers, but what we need is collaboration throughout the year between the two groups and not just during promotional periods.”

The debate ended with the consensus that collaboration should exist at every step of the sales chain between the retailers and brands, with the customer as the focus of the strategy for maximum returns to all.

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