Paddying up for Basmati

It goes against the grain – multinationals edging into a desi stronghold like basmati? It has been tried before - by giants, at that. Both PepsiCo and Cargill entered the branded basmati market in India, only to exit quickly. Now comes another Don Quixote to tilt the windmill - the $3.5-billion food and flavour giant McCormick & Co, which has just bought the Kohinoor basmati brand.

Will it succeed where others have given up? Basmati is, after all, a highly commoditised market in India, with peculiarly local nuances to buying and selling. Will the entry of McCormick widen the branded basmati market, as has happened in edible oil?

Admittedly, the shift is already happening. There are dozens of basmati brands – India Gate, Dawat, Amira, Tilda, Begum and Neesa among others – crowding the shelves today. Anil Kumar Mittal, Chairman and Managing Director of KRBL, which owns India's largest-selling basmati brand India Gate, estimates that about 40 per cent of the Rs 10,000-crore basmati business is already now organised and packaged.

The last few years have seen action hotting up in the segment with many of the large exporters and wholesalers getting into consumer retail. Take the Rs 1,400-crore Best Food. “We were only into B2B retail but in the last one-and-a-half years we have gone into B2C,” says Aayushman Gupta, Business Director, Best Foods, describing its attempts to develop a commodity staple into a strong brand proposition.

The company is following an unusual strategy - it proposes to open a chain of 1,000 stores in a year that will retail its brand of basmati plus a few other products such as walnuts, almonds and honey. (See Box) Gupta thinks McCormick's entry will significantly impact customer awareness and expand the branded basmati business. “Rice has typically been a low-involvement category – but now with packaged premium products that carry true labelling, customers will begin to understand what is good rice,” he says.

He could be right. Immediately after acquiring Kohinoor, McCormick has already begun an initiative to educate Indian consumers about the true quality of basmati rice. The company has roped in Sharmila Tagore and her daughter Soha Ali Khan in the North and the mother-daughter duo of Uma Krishnan and Trisha in the South to educate consumers with the aid of a ‘basmati meter' in television commercials.

Karan A. Chanana, Chairman of Amira Foods India Ltd, which sells its Amira brand basmati rice in over 21 countries and has a presence in 40 others through private labels, also welcomes McCormick's entry. He believes that given the rising disposable incomes, on the back of which consumption of the aromatic rice variety is growing, the branded basmati segment could well double in the next three years, “especially when opening up of foreign direct investment in retail is being talked about. The best practices that MNCs bring would help in greater penetration of brands,” he says.

But there are others who think it will have no impact. “I don't think McCormick's entry will make any difference. We are not afraid of them,” says Mittal of KRBL whose India Gate and its sub-brands claim to have a market share of about 12 per cent. Mittal, a veteran, who has seen the entry and exit of several MNCs such as Cargill, Hindustan Unilever and Indian giants such as ITC from the basmati-growing paddy fields, says, “Basmati trade will continue to be the forte of traditional players who are well entrenched in the trade.”

McCormick's strategy/ flavour

Unlike others such as PepsiCo and Cargill, which went it alone, McCormick has come in through the acquisition route – picking up stakes in well established brand Kohinoor, from Kohinoor Foods Ltd (KFL) in a $115-million deal – its largest global buyout so far.

The global flavour maker has forged an 85:15 joint venture, Kohinoor Specialty Foods Ltd, and will own the Kohinoor brand while leaving the back-end operations of procuring and processing to its partner KFL. McCormick's strategy is to ride on the strong distribution network created by KFL and source basmati rice from it under a long-term arrangement to sell only in the Indian market.

“The basmati brand could not be McCormick's interest. It is the well-created distribution set-up of Kohinoor they are interested in,” says an official from a major competitor.

Satish Rao, Managing Director, Kohinoor Speciality Foods, admits the distribution reach to over 3.5 lakh outlets gives the global food giant a headstart in India.

“India is a top priority market for us and is in line with our emerging growth market strategy,” said Alan Wilson, McCormick's Chairman, President and CEO, on his recent visit to India. The company sees India, a fast growing market, becoming a significant business in 10 years. The heightened focus on India fits well into McCormick's strategy of earning higher revenues of 12 per cent (now 9 per cent) in three years from the emerging markets including China and Brazil.

On the rationale to pick up Kohinoor, Rao says, “Passion for flavour is what McMormick stands for. Kohinoor was a right fit as basmati is a naturally flavoured rice.” The company is researching the market and exploring options to bring in their food and flavour products into India. The intent is to grow the Kohinoor brand further. “It has the capability and research has shown that the brand can be extended to other food categories to India,” Rao adds.

McCormick has had a long-standing association with India as it has been procuring spices such as cardamom, cloves and pepper over the past five decades. The first formal association dates back 16 years, when McCormick formed a joint venture with A V Thomas and Co - AVT McCormick Ingredients Ltd, an export-oriented unit for value-added spices for exports. Last year, the global giant further strengthened its footprint by picking up a 26 per cent stake in the Kerala-based Eastern Condiments Ltd, a spices firm. Through the Kohinoor deal, McCormick has also acquired the food factory at Bahalgarh, which manufactures ready-to-eat products and also frozen foods, the bulk of which is exported now. “Our plan is to bring new investments and bring out products to cater to the Indian requirement,” Rao adds.

Rising disposable incomes and a younger population coupled with the convenience factor are driving the growth of packaged food products, which the company plans to target in coming years.

McCormick is targeting revenue of $85 million from its rice business in the first year of operations this year from India and expects basmati sales to sustain the double digit growth witnessed over the past five years.

However, in a price-sensitive market such as India, the question is will the global flavour giant's strategies to sell rice succeed?

(With additional inputs from Chitra Narayanan)

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