India's Sleeping Giant: Food
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Abstract
Producers should worry less about elite consumers As Indians' purchasing power increases, they will demand quality in basic foods An integrated response can transform the huge inefficiencies into opportunities Speak to the executives of India's largest food companies and they confess a sense of disappointment. For although India is the world's third largest food producer [ILLUSTRATION FOR EXHIBIT 1 OMITTED], the combined turnover of its ten largest food companies is only $2 billion - one-tenth the sum turned over by Nestle's operations in Europe. In a country of one billion people, it seems that the size of the potential food market might have been overestimated. The truth is that the markets for the products on which India's food companies have concentrated - higher value-added items such as breakfast cereals, jams, and sauces - are indeed small because these products are aimed at an elite. The big, and so far largely untapped, opportunity lies with mass-market products - packaged wheat flour (atta), biscuits, poultry, and liquid milk - which could eventually account for more than 80 percent of the total market. In some of these categories, hundreds of millions of customers will be added over the next few years: by 2005, more than 140 million Indians will consume packaged atta, for example, and 300 million packaged milk. This growth in consumption means the overall market for value-added foods will treble from $21.4 billion today to $62.5 billion by 2005. Changing consumption patterns Two factors are driving the change in consumption patterns. The first and most important is rising incomes, which will enable poor people to begin to emulate the diet of the rich. The second is the greater experimentation in eating that results from increased choice. Although most people will tend to remain faithful to cultural notions of what good food is, diets will evolve as a new generation grows up with a higher income. An analysis of the development of eating patterns across 20 countries shows that they go through a distinct evolutionary process [ILLUSTRATION FOR EXHIBIT 2 OMITTED]. In the first "subsistence" stage, the emphasis is on obtaining basic foods for survival: cereals, fats, oils, fruit, and vegetables. This is the stage typical of developing economies, and the point at which most of the Indian population stood until recently. While a population remains at this stage, there is little growth in consumption as a percentage of total expenditure. The flattening out takes place at $1,000 purchasing power parity (PPP) per capita income. The transition to the next "basic" stage typically takes place $1,000 PPP per capita income. Here, the subsistence diet is supplemented with foods such as milk and dairy products, meat, fish, poultry, and eggs. As incomes grow, so does the emphasis on the quality of these basic products. The third "premium" stage comes into play at an income level of $7,500 PPP per capita. Here the focus is on wider choice, increased processing, rising quality, and more exotic ingredients. Consumption includes eating out. This is the stage reached by highly developed economies. Because India is a large and diverse nation, all three evolutionary stages are present at once. While lower-income groups move from subsistence to basic foods, upper-income groups progress from basic to premium items. But over the next decade, the first of these shifts will be more important. The basic sector will double in size by 2005, taking in 33 million more households or nearly 200 million people; the subsistence sector, meanwhile, will grow by only 14 percent (though this will represent an extra 18 million households). The premium segment will grow by 150 percent, though this will only amount to 2.5 million additional households as the segment is so small [ILLUSTRATION FOR EXHIBIT 3 OMITTED] Basic foods for basic needs A simple matrix makes it easier to understand the nature of the opportunity. …