Continuing growth in the country’s snack market can be attributed to prevalence of traditional snacking culture in India, aggressive marketing strategies by key market players, rising disposable income and growing urban population. Introduction of regional flavors by leading players is also boosting the extruded snacks market in the country. Moreover, busy work schedules, especially of urban population, coupled with huge and growing young population base is boosting demand for extruded snacks.
“Consumption of snacks is also growing on account of competitive pricing strategies being followed by small and regional players”
India’s snacks market grew at a significant pace over the last decade, and is forecast to grow at a CAGR of more than 11% during 2016 – 2021. West region of India dominated the country’s extruded snacks market in 2015, and the region is expected to maintain its dominance during the forecast period. The region also accounts for the largest number of organized and unorganized extruded snacks manufacturers in the country. In 2016, mixed snacks grabbed the largest value share in the market, and the segment would continue to be the largest in the coming years. Combination of various ingredients makes the products in this product category tastier and crispier, and consequently the segment has been witnessing increasing demand from every section of the society, especially from kids and younger generation
Desi companies take on snack market
Indian consumers seem to have recovered their taste for traditional snacks such as farsan, bhujia and Namkeen going by the impressive growth rate of local firms at a time when their multinational rivals are struggling.
Local snacking companies such as Balaji Wafers, Prataap Snacks, Bikanervala, Bikaji Foods and DFM Foods have recorded sales growth of 8-35%, in 2016 even as international food majors such as GSK Consumer, PepsiCo’s food division and Mondelez struggled to grow their business amid slowing rural demand and discretionary spends.
“It’s not that the local players ‘impressive numbers came from a very small base. These five firms have combined sales of nearly Rs 3,700 crore, that is higher than Nestle’s Maggi, and a few of these firms are larger than Kellogg’s in India”
GSK Consumer posted negative sales growth in 2015-16 while Pepsi-Co’s food division and Mondelez both grew 4%. Experts and company insiders attributed local players’ growth to lower price points, increased distribution and conversion from unorganised market.
Balaji Wafers that posted a 14% sales growth last fiscal at Rs 1,440 crore have kept overhead costs low so that their products remain affordable and they are also bringing healthier variants and expanding in Rajasthan and Madhya Pradesh helped.
On an average, regional snack brands offer 30% higher volume than multinational rivals at similar price points, especially in highest selling price points of Rs 5 and Rs 10.
According to market researcher Euromonitor, sweet and savoury snacks have grown by 26%, highest within packaged food segment between 2010 and 2015. About four years ago, packaged namkeen had replaced western snacks such as potato chips and finger sticks as the largest segment within branded salty snacks market.
“Domestic manufacturers are increasing their distribution and penetration into rural India and have launched smaller packs at lower price points”
The research firm expects the salty snacks segment to surpass biscuits with sales of nearly Rs 35,801 crore by 2020, up from Rs 19,151 crore in 2015. Funding from private equity funds helped domestic snacking firms to expand their reach and market their products more aggressively.
There has been an impetus on brand building and geographical expansion by these regional firms. Their variants launches have been faster compared to large food companies.
Prataap Snacks, maker of Yellow Diamond chips, was backed by Sequoia and has filed papers for an initial public offering (IPO) to raise Rs 400 crore. The company, which clocked 35% growth in sales last year at Rs 758 crore, recently roped in actor Salman Khan to promote its brand. Nearly two years ago, private equity fund Lighthouse Funds had invested Rs 125 crore in Bikaji Foods while WestBridge Capital Partners picked up a 25% stake in DFM Foods that sells snack foods under the brand Crax.
It may be difficult for these domestic players to maintain their growth momentum though as larger rivals are entering their turf with similar pricing and products. Parle Products, ITC and PepsiCo have all launched similar range as smaller regional players in the past few years.
“No doubt, regional brands offer better value for money. But as MNC’s enter their region and expand portfolio, their growth rate might taper off”
A branded, hygienically packed option, from Mother’s Recipe, is double the price and comes in many flavours. But the branded aloo papad still doesn’t command the price of packaged, branded potato wafers.
Marketers say this can change, that micro innovation can make desi snacks command price premium comparable to ‘Western’ snacks. And the makeover of munchies has started.
Since aloo papad required an additional effort (frying) consumers “understand” the premium for ready-to-eat munchies. Lays potato wafers from PepsiCo, the market leader in India in ‘Western’ snacks, is priced roughly 10% higher than a packet of aloo papad of similar size.
“But desi munchies are making big inroads. Dosa masala burgers, jaljeera and aam panna drinks, masala oats – these are just a few products in portfolios of snack-makers, even multinational ones”
The potential for desi snacks is limitless…companies are gradually converting products that are traditionally eaten at home to something that are consumed on the go. Thus it is expected that Indian snacks will take over Western’ ones in the next 2-3 years.
Marketers also say consumers are correlating healthy food with something inherently Indian and are starting to favour munchies that use ingredients common in Indian kitchens.
Consumers are rewarding brands that innovate in flavours, form or delivery. A staple product like aloo, used in parathas in the north, wada in the west and dosa in the south, has the potential of being twice the ‘Western’ snacks market that is worth Rs15,000 crore. Future Consumer, is launching traditional aloo bhujia in peri peri, wasabi and schezwan flavours and pricing it 30% higher than rival products.
Future Group, the country’s largest retailer, also plans to launch mayonnaise with desi flavours such as coriander and pudina, smoky Tikka and mustard.
Ditto in the case for Kettle Studio Chips, a product that isn’t processed at conveyor belts but is made in a desi style by frying them in a pot has a price tag double than t a product that isn’t processed at conveyor belts but is made in a desi style by frying them in a pot has a price tag double than that of potato wafers.
Paper Boat led the revival of packaged ethnic drinks, a move which resulted in category leaders such as Dabur’s Real and PepsiCo’s Tropicana to also launch flavours such as coconut water, jaljeera and Mosambi. Now, Paper Boat will enter the snacks category.
“Paperboat’s focus will be on ethnic snacks, similar to be beverages. We believe there is a latent demand for hygienically packaged, branded ethnic snacks”
These and other munchies makeover will come on top of earlier experiments, many of them successful: Nestle’s Maggi and Pepsi’s Kurkure have a combined business of a billion dollar in Indian snacks. But there’s plenty of room to grow in the $35 billion food market.
The Indian snack companies
Prataap Snacks has come a long way from the narrow by lanes of Indore. What began as a small-town venture has now evolved into India’s fifth-largest salty snack maker in terms of market share, according to data from Euromonitor. Some of its most popular products come under its Yellow Diamond brand: potato chips, the Motu Patlu rings, and tangy snack Chulbule.
Loyal customers have helped turn Prataap into a national snacking brand and a name to reckon with in India’s Rs19, 000-crore salty snack market. The company clocked a turnover of Rs757 crore and a profit of Rs20.8 crore for the year ended March 31, 2016. The icing came when in 2016, Bollywood star Salman Khan agreed to endorse its chips.
The team has taken on India’s massive potato chips market, created and dominated by food and beverage giant PepsiCo India through its flagship brands, Lay’s.
The company has also clinched a deal with the Reliance Retail’s supermarket stores, marking its entry onto supermarket shelves after years of being sold primarily through small shops in tiny streets.
Desi snack-maker Haldiram’s grew 13 per cent clocking combine revenue of more than Rs 4,000 crore in 2016. The homegrown snack manufacturer, which had its humble beginnings in a small shop in Rajasthan’s Bikaner, is also the market leader in traditional snacks.
The Indian snack major is now twice the size of Hindustan Unilever’s packaged food division or Nestle Maggi and larger than the India turnover of the two American fast food rivals Domino’s and McDonald’s put together.
Haldiram has increased its reach and developed products in-house that ensure quality control. The company also understands Indian palate well and that comes handy while launching new products.
India’s snacks market, which has long been dominated by potato chips now faces stiff competition from Haldiram’s traditional offerings for the Indian palate.
Haldiram’s retails chips in commonly known flavours as well as exotic ones like Thai Chilli. On the export front, the company’s products are available in the US, the UK, Middle East, East Europe and parts of North Africa
Parle Wafers of Parle Products’ has strategically-located manufacturing facilities, one each in Bahadurgarh, Indore, Madurai and West Bengal with each facility catering to a particular zone. Parle Wafers is a relatively new and smaller player in the overall snacking segment, currently with six wafer variants.
Despite being a company with a huge distribution network, reaching a higher number of outlets is definitely challenging. There are typical outlets where there is exclusive availability of Parle Wafers, which becomes a big strength. On a comparative scale, while the exclusive retailing opportunities are beneficial, the company finds its sales comparatively reducing by 10% when it retails via multi-brand outlets. For Parle Products, snacks contribute 3% to its total revenue. Within this, wafers bring in 1-1.5%.
“The goal now for Parle Wafers, is to increase footprint and visibility at the outlet level”
CavinKare acquired Garden Namkeens in 2009. In 2013-2014, wafers were introduced. With production for wafers based in Bhiwandi, the target market for the brand is Maharashtra, Karnataka, Tamil Nadu, Delhi-NCR and parts of Gujarat.
Chips and wafers together bring in 35% in revenue. The overall communication expenditure for Garden Namkeens as a whole rarely exceeds 5%. Quality and freshness are very important for them and they try to provide the best volume.
“Once the consumer is satisfied with the quality of the product, they remember the brand identity well.”
Balaji Wafers has manufacturing units in Rajkot, Valsad, Indore and Uttar Pradesh. It counts Gujarat, Maharashtra, Rajasthan, Goa and Madhya Pradesh as its markets. The company spends 5-10% towards communication, only if the need arises. There is no compulsion, to add the communication layer at a determined frequency when their products are seeing traction organically. Balaji Wafers shares the cost of the stands it provides to retail outlets. For example, if a stand costs say, `500, 10-20% of the cost is borne by the store and about the same percent by the dealer.
The remaining is borne by Balaji Wafers. Given that it is an impulse driven category, merchandising support such as racks, stands and aerial hangers, is a huge prerequisite generally for snacks and more so for the chips/wafers category.
Mumbai-based Chheda Specialties manufactures three variants of potato chips and five variants of banana chips at its Manor unit in Maharashtra. The chips contribute 60% towards revenue which also includes exports and the marketing initiatives at local levels draw about 4% ad spends.
Chheda Specialties provides offer-based promotions to outlets like D-Mart, Reliance Fresh or Big Bazaar.
Domestic players start from a very low base, which gives them many opportunities and a lot of ground. With many people joining the consumption fold, maintaining taste and variety are very important. The category in itself has a lot of potential owing to higher disposable incomes and increased consumer awareness.
The most important is that what tip the scale in the favour of local brands are consumers and them being convinced of the product being of a certain quality.
“Indian consumers have also started to benchmark locally manufactured snacks against those that are imported”
For example, increased western influences through the availability of imported potato chips have made Indians more aware of product concepts and attributes like packaging.
Product innovation, branding and packaging have provided an added impetus for these products. With domestic’s snacks manufacturers willing to experiment with flavours and providing the best value for money to customers, there are promising times ahead.