Regional food makers tap demand, equity to grow national footprint
Innovation in packaged foods, a Rs.1.38 trillion market in India, is being led by regional firms, say analysts tracking the sector
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Benhgaluru/Mumbai: Crispy bhujias, crunchy murukkus and spicy chulbule. All packaged and ready to go.
Two decades after western food firms started selling packaged foods in India, local food makers have caught up with their multinational peers.
Firms such as Rajkot (Gujarat)-based Balaji Wafers, Indore-based Prataap Snacks, Bikaner-based Bikaner Bhujia, Delhi-based Bikano snacks and Bengaluru-based Maiyas are adding new products, raising capacity and expanding, many of them armed with venture capital funds.
Innovation in packaged foods, a Rs.1.38 trillion market in India, is being led by regional firms, say analysts tracking the sector.
“Most of the charming, consumer insights-driven products are coming from the smaller and local food companies,” says Damodar Mall, chief executive officer (value format) at Reliance Retail Ltd, a unit of Reliance Industries Ltd. Over the last couple of years, the retail chain has partnered local companies to take their brands national.
A national footprint is exactly what Amit Kumat, chief executive officer and director at Sequoia Capital-backed Prataap Snacks, a Rs.560 crore company, has in mind. His company is busy developing sweet snacks and confectionery, diversifying from the company’s famed Yellow Diamond potato chips that go for Rs.5 a pack.
“It’s (the new product) something India has never seen before,” Kumat said over the phone.
The research team at his 10-year-old company is working with a few regional flavour makers—such companies assist large and small packaged food makers with developing new flavours.
While the multinational companies (MNCs) helped build the snack market, the local rivals are taking it forward, Kumat said.
Consulting firm KPMG India has compiled a list of 50 such mid-tiered companies which rule the packaged foods market.
According to Anand Ramanathan, associate director, KPMG, “this is where all the innovation you see coming from; The MNCs aren’t doing anything to shake the market.”
While Prataap targets sweet snacks, Bengaluru’s Maiyas is preparing bhujia pops and bhelpuri bars. And MTR Foods Pvt. Ltd, another Bengaluru-based firm, has commissioned a study on ethnic foods in south India.
According to a 2014 report by ratings agency Crisil Ltd, mid-tiered packaged food firms could grow twice as fast as their MNC rivals by 2020.
Executives at several large packaged foods firms said they were investing Rs.100-400 crore for new products and new markets. Maiyas and Prataap are attempting to raise Rs.100-300 crore to finance the expansion.
In March, Mint reported that Prataap Snacks is looking to raise $50-70 million. In 2011, Sequoia invested around $30 million in the firm and Rs.25 crore in 2014.
The packaged foods market has come a long way since the early 1990s, when western companies such as PepsiCo Inc. introduced Lay’s and Kurkure and Kellogg Co. introduced cereals.
ITC Foods joined in the late 2000s with Bingo.
“The ’90s were all about importing western ideas, and food was an essential part of it,” says Neeraj Kakkar, promoter of Hector Beverages Pvt. Ltd, which makes the PaperBoat brand of ethnic beverages such as aam ras and jaljeera. At that time, ethnic food firms, small and lacking the bandwidth to expand, remained confined to their home territories. However, a decade later, driven by strong demand and equity infusion, these companies are rising.
“A dramatic shift in consumer preferences, where ethnicity is perceived as more authentic or cool, is helping,” Kakkar added.
Conversion from un-branded to branded foods is a big driver, an investor said.
“The market is just driven by a far speedier upgradation,” suggests Sachin Bhartiya, partner at Mumbai-based Lighthouse Advisors India Pvt. Ltd, that invested close to Rs.90 crore in Rajasthan-based Bikaji Foods International last year.
“Traditional eating habits are far difficult to change,” adds Suresh Goel, chief executive at New Delhi’s Bikanervala Foods Pvt. Ltd that sells the Bikano brand of savouries in the northern markets. The firm recently spent Rs.120 crore to build a new facility in Haryana.
Promoters are also stepping out of their comfort zones.
Rajkot-based Balaji Wafers Pvt. Ltd doubled capacity at its Valsad plant 2014, according to a report in Business Standard. Earlier this year, it said it would spend Rs.400 crore in a phased manner for a second plant in Indore to service more markets in north India.
In Rajasthan, Deepak Agarwal, a second-generation entrepreneur who runs Bikaji Foods International, is looking at selling bhujia in overseas markets. A new plant is under construction, less than a year after it raised funds from private equity and venture capital firm Lighthouse Advisors India Pvt in exchange for a 12.5% stake.
Agarwal said over the phone that Bikaji Foods plans to launch far more “newer products than what the company already sells”.
Prataap Snacks, which already sells in the northern and eastern parts of the country, is setting up a plant in Chennai, targeting a national footprint.
Consumers are also endorsing regional flavours, add retailers. “We are finding that companies with ethnic products which are high on quality, like Maiyas and PaperBoat, are doing really well as consumers are willing to pay for them,” said Seshu Kumar, national head (merchandising) at online grocer bigbasket.com.
Smaller companies are also finding takers on the Internet.
In Bengaluru, Ramesh Krishnamurthy, formerly part of GMR’s airport management team, is incubating DelightFoods.com, a start-up that helps 60 small local food shops to reach foodies across the country.
Krishnamurthy’s hypothesis: “More migration will increase demand for regional foods.” Earlier this year, Mape Advisors backed the start-up with Rs.1 crore.
A consumer expert seconded his thoughts. “Alien food palates don’t work any more,” said Dheeraj Sinha, chief strategy officer at Grey Advertising (South and South-East Asia) that works with large food companies. Food is about local tastes. “The idea that western food is good is misplaced,” he adds.
Sapna Agarwal in Mumbai contributed to this story.
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