The edible oil market is consolidating through acquisitions of smaller brands by MNCs.
India’s Rs 15,000-crore packaged edible oils market is heating up. Despite a market size of over 16 million tonnes in 2011, India’s per capita consumption, at just over 13 kg a year, is just about half the global average of 24 kg per year.
This untapped potential has attracted a spate of major multinationals. While some have made an entry with their global brands, others have preferred to buy out the local players and re-launch the acquired brands.
The segment has seen a spate of acquisitions by multinational majors of local brands in recent years. The latest in such a trend is the recent re-launch of Sweekar, a premium edible oil brand by Cargill India. Sweekar will now compete with the likes of Sundrop, from the ConAgra stable, and Saffola of the home-grown Marico Industries, which dominate the premium edible oil segment.
It was from Marico that Cargill acquired the Sweekar brand last year. Sweekar is the third such acquisition in the edible oil space, besides Gemini and Rath, for Cargill in India, where the global commodity player is trying to connect with the end consumer.
Last year another global food giant, Bunge, took the acquisition route by buying out the edible oil business of Amrit Banaspati Company that owned brands such as Gagan, Ginni, Amrit and MerriGold.
Such a move has helped Bunge extend its distribution reach, expand its manufacturing presence and brand portfolio in India. Bunge entered the Indian market, way back in 2003, by acquiring the iconic Dalda brand from Hindustan Unilever Ltd.
Acquire, hedge risk
Earlier, the food MNCs adopted such a strategy to gain entry into unexplored markets such as India. They are still relying on buy-outs to consolidate, strengthen and widen their presence here. Though considered a bit expensive when compared with launching a new product, such a time-tested strategy of acquiring known brands helps these multinationals hedge some of their risks.
“Any new brand launch not only requires financial muscle, but also comes attached with risks – such as the uncertainty over its success,” says Aseem Soni, Director (Consumer Sales), Cargill India.
Sweekar was devoid of investments in the past 4-6 years, in which Cargill saw potential and heritage value. “It had a lot of brand recall,” says Soni, adding that it offered big opportunity for innovation.
Cargill not only changed the product mix and positioned it as a healthy oil but also came out with new premium packaging – in a new shrink-wrapped box pack designed to be tamper-proof and minimise spillage. Sweekar is a blend of 80 per cent sunflower oil and 20 per cent high oleic sunflower oil, produced from seeds that contain more than three times the amount of monounsaturated fatty acids (MUFA) as compared to regular sunflower oil. (MUFA are credited with helping to improve the blood lipid profile.)
Cargill, which tasted success with the buy-out strategy, has acquired three brands in the past 7-8 years including Sweekar. The Gemini brand of refined sunflower oil was bought out from its joint venture partner in 2005. Gemini, which had a good presence in the West, especially in Maharashtra and Karnataka, continues to be a strong player in the region.
The entry into hydrogenated oil or the vanaspati segment about 1.5 years ago was with the acquisition of Rath, an old heritage brand. “Nobody was interested in Rath, which was dying. We bought it and are keeping it alive,” says Soni. Cargill upgraded the vanaspati product, which has a market in certain parts of the country, especially Delhi and surrounding areas.
The response to Sweekar has been good in various pockets. “The product has been noticed very well and has got a lot of eyeballs. Consumers have appreciated the product upgrade and the strategy of providing a recipe developed by celebrity chef Sanjeev Kapoor in each pack,” Soni says.
Cargill has close to 100-odd recipes created by Sanjeev Kapoor, of which 12 would be given out to consumers every month.
Competitively priced with Saffola and Sundrop, Sweekar aims to garner a 20 per cent market share in the next few years in the growing premium edible oil space, where growth in value terms is double that of the branded, packaged oil segment. Rising awareness of health issues and increasing affordability are driving growth in the premium edible oil segment.
A premium affair
Moreover, with the prices of popular oils such as soyabean and palm oil inching up and the gap narrowing, consumers are seen shifting towards the premium edible oils, says Soni. The gap between popular and premium oils, which stood at 15-20 per cent a year ago, has now shrunk to 5-10 per cent, depending on the various brands, he adds.
“Acquisitions can be seen as a form of consolidation in this market which is fragmented with a few big players and many small players.
The MNCs are looking at India with interest because of the high consumer demand,” says Inderpreet Kaur, Associate Director, Technopak Advisors.
Cargill started its strategy to connect with the consumer in early 2000 with its NatureFresh atta (wheat flour) brand and subsequently expanded it to the edible oil segment. The company discontinued the brand midway for its own reasons about six to seven years ago.
“So far, the experience has been good,” says Soni, adding, “We will continue to look at buying out brands and energising them.” Cargill plans to strengthen its business-to-consumer initiative by getting into newer categories and has made its intentions clear of getting back into the wheat flour. However, the company has not set any time frame for that.
Technopak’s Kaur believes that acquisition as a trend for the MNCs will continue as long as the sector is under-penetrated and there are multiple players fighting it out. Also, due to the inherent volatility of prices in this segment, brands that have a diversified portfolio of edible oil categories would be better placed than those focused on a single variety.
This is so because the former will have the flexibility to modify their product portfolio in line with market demand and maintain optimum capacity utilisation levels, Kaur adds.