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Perishable Value Opportunities

This article is based on a presentation at the 2nd International Summit of Processed Food, Agribusiness and Beverages, organised by the Associated Chambers of Commerce (ASSOCHAM) and supported by the Ministry of Food Processing, Government of India. The presentation was made to a mixed audience of retailers, manufacturers, farmers, government functionaries and service providers, and rather than provide answers, the objective was to raise questions that were not being discussed.

The old saying goes: where there are issues, there are opportunities. By that standard, the perishable commodities supply chain offers plenty of issues and, hence, opportunities.

Part of the problem, or opportunity, is that there are so many steps between the farmer and the consumer, so many hands through which the produce passes, especially in the case of India. With every step in this supply chain, there is the potential of waste and deterioration with time, and on the flip side, there is also an opportunity to add value and improve.

Misalignment on Motivation

One core issue, at the heart of most problems with the perishables supply chain, is widely different perspectives and the lack of alignment.

For instance, there is competition at the basic level between cities and villages. But there is even misalignment between the development needs of ever-growing cities that are taking over neighbouring agricultural lands, and the need to feed people living in those very cities. Similarly, the motivations for small sustenance-driven landholders are different from those of the wealthier farmers with large holdings. And, of course, within the supply chain, the tug of war is between consumer vs retailer, retailer vs brand, brand vs producer.

This is but natural in any economy, even more so in India whose rapid growth is widening the already existing gaps and intensifying the inherent disconnects.

Misalignment on Value

However, there is also another significant potential misalignment, of which we need to be keenly aware. This is in the very definition of value.

Given that we have been discussing “value-addition” as a driver for the food supply chain, I think we also need to understand that the word value has various connotations and implications, depending on who we are speaking about. Each throws up different challenges, and needs to be dealt with differently.

In my mind, the three aspects of value related to the food sector are:

  • Calorific
  • Nutritional
  • Economic

The complication is that these three aspects address three very different audiences in society.

For a large part of India’s population, simply providing adequate calories is the main problem. For this chunk of people, not only do we need to have more productive land under use, we need to maximise the output from each piece of land, and ensure that the productive output reaches the population that needs it the most. Within that, there are several social, political, logistical and economic challenges to tackle: clarity of land-holding, availability of arable land to agriculture rather than non-agricultural uses, unit area productivity with efficient use of other resources, safety during transportation and storage, and distribution at prices that are affordable.

Nutritional value is the next step up: packing more nutrients into each gram of produce and delivering the right mix and balance is a critical issue for consumers who get enough calories, but can benefit hugely in physical and mental health through the quality of the nutrition they are taking in.

In pushing up both calorific and nutritional value, we also run into two entirely different debates.

One is whether genetic modification (GM) is desirable. The argument against GM foods is that we shouldn’t tamper with the most basic building blocks of biology, because we don’t understand the implications completely. The powerful argument for GM is that it is a must, to ensure that we have enough and ever-improving food available to a growing population.

The second debate is about organic produce. The organic camp believes strongly that organic is better, nutritionally superior. The other side argues that organic delivers no clear demonstrable increase in either calories or nutrition, and instead pushes production down and prices up: a recipe for complete disaster in a growing country.

But most interesting to me is the fact that in most industry platforms such as this, when we speak of “value-addition”, it is neither calorific nor nutritional value that is being targeted, but only economic value.

Obviously, companies are profit-driven by their very nature, and if calorific or nutritional value does not deliver economic value to them, they will not focus on those aspects. For that reason, most companies engaged in or being encouraged to participate in the food supply chain do so through food processing: the transformation of the basic produce into a manufactured packaged product with higher economic value per gram. A thinking consumer may be tempted to ask, am I getting proportionately better food (especially more nutrition) for the extra unit value that I am paying for orange juice (as compared to oranges), ketchup (as compared to tomatoes) or chips (when compared to potatoes)?

My concern is that such a deep misalignment in the definition of value can cause a huge amount of friction and potential politicisation, especially if only one aspect of “value-addition” is constantly in focus.

Misalignment on Losses

I’d also like to briefly comment on another aspect of value: losses.

We’ve all come across the much-quoted “fact” that in India 30-40% of the agricultural produce is wasted. That’s incredible! A country otherwise so frugal pushes a third of its valuable food into the gutters? Can that really be true?

I have not come across any authoritative study that clearly demonstrates that India actually wastes that much food.

Of course, there is wastage due to improper harvesting, lack of post-harvest processing and gaps in the storage and transportation infrastructure. But that figure, depending on what product and part of country you pick, varies hugely and the overall average is nowhere close to the 30-40% figure.

Overestimating the size of the problem leads to overestimation of the opportunity, and that misdirects investment. I think the correct way to look at the issue is not just in terms of value-lost, but in terms of opportunity lost. There is certainly an opportunity for farmers to grow their incomes by ensuring that better agricultural and post-harvest techniques are followed. If harvesting products at the right time, chilling the produce at the farm immediately, adequate sorting and grading, or even the simple act of washing can lead to higher prices for the farmer, I’m all for it.

The opportunities we are missing may be bigger than the waste that we imagine.

The Drivers of Value

Obviously, the technological, political and business mandate changes dramatically, depending on where we want to focus on building value. Is it to increase, improve, protect or change the produce? Are we going to focus on the seed, on growth, on harvest and post-harvest, on processing, on storage, on packaging or marketing.

Given the diversity of the questions, I think the discussion on value should also include – openly – a widely inclusive group. Obviously large corporate retailers, brands and producers, and the various arms of the government would be part of the discussion, but the table should also have room for farmers of every hue, technology innovators that address not just aggregated large land-holdings but also small farms, and platforms that encourage both ultra-modern and traditional knowledge, both from within India and outside.

By focussing on an over-simplified view of “value-addition”, we risk not addressing fundamental issues. In fact, we could be losing sight of humongous opportunities.

In the food supply chain, we are dealing with a product that is perishable; given our economy’s rapid transformation, the opportunities are perishable, too. We should get cracking.

(To download the PDF of the presentation, please click here.)

Airtel’s new logo comes in for severe criticism

Economic Times, New Delhi, November 28, 2010
Ravi Teja Sharma

Airtel is a fairly new brand and is prepared to go through the works. Also, Sunil Mittal still may not be listening to dissenting voices from the public. But why did Airtel decide to rebrand? Mohit Beotra, head of brand and media at Bharti Airtel explains: "We are at a significant stage of evolution at the moment. This brand is now going to be visible on two different continents. This will signal our readiness to change." He adds that the new logo, which has a lower case font in a sharp contrast to the earlier upper case bold fonts, is younger and more dynamic. "We also wanted to be seen as a more humble brand and so the lower case lettering."

Loyal consumers are not buying the idea. Over the years, a number of international brands that have changed their logos have retained uppercase typefaces.

In October, when Gap changed its decades old logo to "a more contemporary, modern expression", it attracted a huge amount of criticism from people on Facebook and Twitter. People wanted to blue box logo back. The result: Gap announced on its Facebook page that it was going back to its old logo.

"The logo has to communicate the brand," says Devangshu Dutta, chief executive of Third Eyesight. Gap’s change in logo was a sudden, drastic one and that was unacceptable to consumers. If we look back at successful logo changes, the majority have been incremental changes, a case in point being the changes Shell made to its logo-9 times over 100 years. "Of course a brand has to change but an increment change makes it more acceptable with consumers," says Dutta.

A logo can create a connect or disconnect with consumers. "With Airtel’s new logo, it certainly seems like a case of disconnect," says Harish Bijoor, brand domain-specialist and chief executive officer of Harish Bijoor Consults.

With these sudden changes, companies run the risk of alienating customers. "Companies that update their logos in conjunction with corporate evolution will be building trust and staying fresh in the minds of consumers as long as the changes are subtle instead of staggering," says Prathap Suthan, national creative director at Cheil Communications.

Some of the best brands in the world have very distinctive logos. If a logo isn’t distinctive, it will not stand out in the crowd. Airtel’s new logo, as many of the tweets and facebook comments point out, looks like a mix of two logos-Vodafone and Videocon. Many comments pointed out that the new logo looks like an inverted Videocon logo.

"Rotating by an angle of 135 degrees will make it look like Videocon logo too," says Nitesh on techbits.co.in.

The new logo, with its new typeface, surely does look young and vibrant, says Bijoor, but it doesn’t have the consumer connect that the old logo did. "It’s too soft. It could merge rather seamlessly into the FMCG space but then Airtel is not an ice cream," he says.

Today, all telecom logos are starting to look alike. Instead of differentiating, Airtel chose to merge into other brands with this new logo. It chose to use the colour red that Vodafone already uses. Does it have anything to do with the fact that the new Airtel logo was designed by London-based agency, Brand Union? The agency also also designed the Vodafone logo.

"And with mobile number portablility just round the corner, it certainly doesn’t seem to be a very good move. For anybody sitting on the fence about using Airtel’s services, it is a nudge to move out," says Bijoor.

In most cases a new logo enhances the brand. "While negative comments in the case of Airtel that we are seeing won’t impact the value of the brand, it won’t enhance it either," says Madhukar Kamath, group CEO and managing director, Mudra Group.

But the new logo with its international appeal is expected to work in newer geographies that Airtel is entering. "A graphic or a symbol is better translated across cultures and geographies," explains Dutta.

The amount of heat generated by this new Airtel logo has really surprised Kamath. "This in a way means that Airtel has a strong equity with people and because of the change they are responding aggressively. There is a strong degree of emotional connect and people are quite concerned." But while there is a great degree of concern, one isn’t seeing too many people on the other side-people who like the logo, which is a problem.

Interestingly, both Kamath and Dutta agree that the first time they saw the new Airtel logo, it didn’t connect.

Another example of dramatic change in logo was that of Videocon that changed in 2009. Abraham Koshy, professor of marketing at the Indian Institute of Management at Ahmedabad explains that brands should change drastically only when there is a very compelling reason. Videocon had that compelling reason. It needed to shake off its old world image and take on multinationals that were ruling the market.

When a brand is doing well and you change drastically, there is a chance that the consumer with a strong brand affinity, as in the case of Airtel, feels offended. "The risk is higher with drastic changes for strong brands," says Koshy. He also points out that a change in branding also needs to show in the actions of the company. Actress Gul Panag’s tweet a few days ago drives this point clearly-Airtel shouldn’t sit pretty and bask on its current glory, but work towards improving its service.

(This article originally appeared in The Economic Times on November 28, 2010)

Britannia, Marico, PepsiCo spot a big opportunity

Economic Times, Bangalore, November 3, 2010
Sarah Jacob

Breakfast is the most important meal of the day. Certainly for several packaged food companies , if not for everyone.

Call it the breakfast war, the scramble to serve the first meal of the day is getting busier with companies such as Britannia, Marico, PepsiCo, Kellogg India and MTR Foods offering more and more options to meet Indian consumers’ rising demand for quick-fix food.

Britannia Industries, which already occupies share of the breakfast table with bread, butter and cheese, is making early moves in the ready-to-cook breakfast meals segment, an official said.

One of the country’s largest biscuit makers, Britannia is conducting trials of packaged products such as buttermilk oats and sweet multi-grain porridge under ‘Healthy Start’ brand, and is also toying with traditional Indian options such as upma and poha, an industry official said. "Healthy Start is being positioned as an umbrella brand for Britannia’s plans in the breakfast space," the person said on condition of anonymity. The brand may be rolled out in Bangalore this year.

Britannia is one among several companies looking to cash in on a surge in demand for quick-fix breakfast options in urban areas where the number of double-income families and working professionals are rising and consumer lifestyle and food habits are changing. These products are targeted specifically at urban, working people and, hence, there is no price undercutting or margin pressure, helping the industry grow in double digits, in volume and value. Industry players estimate the branded breakfast foods market in India at around Rs 500 crore, offering enough room for new entrants. There is a ready market for such products.

A breakfast habits study conducted by Kellogg India last year revealed that at least one in three Indians and more women than men skip breakfast daily. Young girls and children were also opting out of the meal several times a week, the study said.

Packaged food companies spot a big opportunity here. "It is easier for consumers to adopt ready-to-cook meals for breakfast as against other meals because of the need for convenience," says Vidur Vyas, marketing director-Foods, PepsiCo India.

"This consumer is also gravitating towards healthy options while looking out for affordability per serving ," he says, adding that Quaker Oats appeals to the Indian habit of consuming dalia (broken wheat).

Also, the urban lifestyle is changing in line with the western world. "The Indian consumer today is more in tune with the lifestyle of western countries due to growing business travel and media exposure, which has been reflected in apparel and now in food as well," says Devangshu Dutta, chief executive of Third Eyesight, a retail and consumer products consulting firm.

At the same time, there is a good demand for ready-to-cook traditional breakfast. "Morning is the most high-pressure time of the day, particularly for the woman of the family. The adoption of ready-to-cook product is on the rise because she does not feel like she is compromising on the traditional breakfast," says Sanjay Sharma, CEO of MTR Foods, which sells instant breakfast mixes such as rava idli, dosa and uthappam.

The Rs 250-crore company, owned by Norwaybased Orkla Brands, said its breakfast segment sales increased 25% last month and that it expects the contribution of breakfast mixes to its revenues to double to 20% in three years.

In recent months, Marico too entered this segment with Saffola Oats and cereal maker Kellogg India launched Heart to Heart oats to cater to Indian preferences of a hot breakfast.

All this explains Britannia’s move to enter the segment. Analysts tracking the sector say the breakfast meals category would be a natural extension for the likes of Britannia as it provides multiple areas of synergy for the company.

"It would give the company greater sourcing flexibility for inputs such as milk powder and sugar , with volumes giving it the capacity to withstand seasonality," says Anand Ramananthan, manager at KPMG Advisory services. Besides broadening its portfolio with trade, on the demand front, it would help Britannia occupy greater mind space in the healthy foods segment, he says.

Incidentally, quick-service restaurant chain McDonald’s , which enjoys strong equity in the breakfast meal space globally, has also identified the gap in the breakfast market. Its chicken Mexican wrap, muffins and hash browns offering is being rolled out across Pune and Bangalore, beyond Mumbai and New Delhi, in two years. "With 200 restaurants in the country today, we are accessible to the on-go-consumer today," said Amit Jatia, Managing Director McDonald’s India (west & south).

(This article originally appeared in The Economic Times on November 3, 2010)