Tag: Food & Beverage

New perspectives needed for food and agricultural growth

Devangshu Dutta

October 25, 2014

These are thoughts shared in an emailed interview with the AgriBusiness and Food Industry magazine (published in the November 2014 issue.)

A Perspective on the Indian market:

Our first word of advice to companies that are looking at India as an evolving and large market, is to acknowledge the fact that that it has very diverse cuisines and food cultures.

Both Indian and international companies wishing to enter this market for the first time need to understand and acknowledge that one-size certainly does not fit everyone.

The variety of finished products needed requires food companies to address smaller quantities and to have flexible production.

Therefore, suppliers of capital equipment and technology also need to be able to think about how they can make their solutions more flexible to adapt to changing market needs, and also to price them appropriately for the Indian market. Simply extending solutions that work in large, developed markets such as Western Europe and North America is not the best approach.

I would use the example of one of our clients, a manufacturer of bakery automation equipment, who have approached the market with an open mind. After initial investigations they have gone back to the drawing board and created production lines that have smaller capacity, can produce multiple products including Indian specialities, and which are techno-commercially more feasible for an Indian customer to adopt.

There is no reason to think that India’s food industry should follow exactly the same development curve as the west. The population is much larger, with significantly lower income, and needs that are far more diverse and changing far more rapidly than in most other economies. The technical and technological models for India need to be strongly focussed on four major attributes:

• Water efficiency
• Energy efficiency
• Flexibility
• Cost efficiency

Agricultural, horticultural and animal husbandry practices and technologies, as well as those in the downstream sectors such as food processing, need to perhaps even look at setting new benchmarks for accessibility and long-term sustainability.

Food processing and the Indian consumer market:

Food processing has been part of human history since we learned to transform hunted, gathered and farmed raw products into new foods through curing, cooking, culturing etc. This processing has been driven by mainly two major factors: to make the raw material into a product that is more palatable and easily consumed (for example, from raw grains to bread), or to extend the storage life of the raw material (for example, in the form of cheese, pickles, or sweets, or using cooling and freezing).

However, during the last century, processing has been driven mostly by “convenience” by providing partly or fully cooked options, to reduce the time spent by individuals in cooking and to instead apply that time to activities outside home. Social structures in India are changing, as individuals are migrating out of their home-towns to other locations within the country. The number of households is increasing dramatically, while cooking time and cooking skills are both declining. With this, out-of-home consumption as well as partially or fully-cooked packaged foods are bound to rise, leading to greater need of food processing capacities.

Also, with increasing industrialisation of food manufacturing, standards have become important both for efficiency and for safety. We’re seeing signs of such development happening in recent years in India as well – expectations of both consumers as well as regulatory authorities are higher with each passing year. The industry needs to invest proactively in better technology and processes in all areas – cultivation, handling, processing, packaging, storage and transportation – to raise the standards of hygiene, safety, traceability etc.

Food productivity needs urgent attention:

India is among the largest producers of many agricultural products. However, our yields per head of workforce, per animal, per hectare, or per litre of water consumed can be improved significantly. Not only is the population growing, but per capita consumption of most products will rise as the economic situation of each family unit changes. Better practices, technologies and know-how need to be acquired and applied to dramatically improve Indian agricultural productivity.

An interesting model of development to look at is the “golden triangle” approach followed by the Netherlands – active and intensive cooperation between the government, academic institutions and the private sector.

So far, by and large, academic institutions in India have limited themselves to “teaching” and have stayed away from actively collaborating with industry. Academic institutions and the industry typically connect only for the occasional “lecture” by senior individual from industry, or during the time of recruitment of fresh talent. Government largely limits itself to creating macro-level policies. More effective communication and coordination between these three legs could help to dramatically improve the standards in the agricultural and food sector in India and make the nation not just self-sufficient but significantly more competitive in both cost and quality of the final products.

Similarly, active collaboration within the industry itself is important to achieve combined growth, which can only happen if companies step beyond the usual industry association framework.

Local production and service of food processing equipment is an important factor:

In cases where the market is large enough, local production of the equipment should certainly be investigated because it can help to bring down the initial capital cost for customers, and also provide a quicker service and support base.

A first step that a company takes is to create a local presence, either through a distributor or agent, or by directly opening a sales and service office of its own. However, most international companies need to gain a certain degree of confidence in the market, both in terms of sustained demand and in terms of operating conditions, before they would invest in manufacturing in India, since it takes a whole different level of management commitment as well as financial involvement.

With the announcement of the government’s “Make in India” initiative, hopefully more international companies will come forward to take advantage of the changing operating environment in the country.

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Leveraging Opportunities in Food & Beverage Sector

Tarang Gautam Saxena

May 15, 2014

Manish Agarwal, Director, Bikanervala mentioned that while consumers are including other cuisines in their diet, they still prefer to have Indian food on a regular basis. Standing firm on its positioning of being a leader in Indian traditional snacks and QSR has helped his company to sustain business in these challenging times.

Arshad Siddiqui of Rasna Beverages shared the challenges related to diversity in India not only of the demand base but even the supply base. He highlighted how flavours of the same fruit vary across different geographic regions within India and adds to the complexity of maintaining consistency in the product range.

The conference was received well by the delegates who found immense value in exchanging thoughts on some highly relevant business issues.

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Home Truths: How retailers are working up private labels to gain consumer loyalty

admin

February 28, 2011

Business Standard, Mumbai, February 28, 2011

Sayantani Kar (with inputs from Preeti Khicha)

When some of India’s big retail chains banded together recently to substitute Reckitt Benckiser’s products with private labels to protest the latter’s decision to cut sales margins on its products, they were doing something many global retailers have done with great success. Part of their overall strategy, especially for large chains in the US and Europe, is to develop quality private label products that complement other pieces in their marketing mix. While this is one way retailers can differentiate their firms from competition, it also helps them flex their muscles in their relationships with brand manufacturers. Indeed, retail giants Tesco, Walmart and Carrefour have a significant portion of their sales coming from private labels — ranging from 10 per cent for Costco and 50 per cent for Tesco.

India is a back runner in the private label race, but it is catching up. A Shoppers Trend Study by Nielsen found awareness about private labels has gone up from 64 per cent in 2009 to 78 per cent in 2010 across 11 cities in India. Nielsen Director (retail services) Siddharthan Sundaram says, “Over the last three to four months, we found an increased awareness of private labels in categories such as staples, household products, personal care products such as soaps, biscuits and packaged groceries.” Thanks partly to the recent economic downturn, there is greater acceptance — and even loyalty — to such brands in India, say marketers. Future Group Business Head (private brands) Devendra Chawla reasons, “A label on the shelf becomes a brand by covering the two feet distance from the shelf to the trolley. After all it is the consumer’s choice.” Even in the toughest segment for private labels to crack — fast moving consumer goods including food and personal care — store labels claim share of 19-25 per cent.

Low-involvement categories such as household cleaners were among the first to see the entry of private labels (17-44 per cent of sale in modern trade), bringing in huge margin-lifts for modern retailers. In categories such as food products — jams, biscuits and staples — private labels today contribute more than 25 per cent of modern trade sales. Little wonder, retailers are now mining shopper data to make private labels shed their ‘low’ly tag — low involvement and low cost. Store chains are segmenting their brands according to consumer needs, combining more than one brand according to consumer behaviour, besides launching high-involvement premium products and innovative packaging to give national brands a run for their money.

Innovate or die
Retail innovation has had a big role to play in speeding up the process of consumer acceptance. Future Group’s retail arm, which includes Big Bazaar and Food Bazaar, calls its in-house products ‘private brands’ not labels. It has a separate team, headed by Devendra Chawla, to research and test FMCG products before launch. The team has a range of private brands — Tasty Treat, Fresh and Pure, Cleanmate, Caremate, Sach, John Miller, Premium Harvest and Ektaa. Look at how it is using shopper data to improve its products. The insight that kids found ketchup bottles cumbersome and had to be served — making it inconvenient if an adult was not around — led it to change the packaging that in turn gave the brand a margin advantage. By offering ketchup in pouches, it saved on the price of the glass bottle and freight (pouches take up less space in a truck, hence more can be fitted in). While ketchup in glass bottles continue to be Rs 99 for a kilo, its Tasty Treat ketchup pouches come in Rs 59 packs.

By working with vendors it has also come up with interesting combinations — for example, its Tasty Treat jam has three small tubs packed as one unit, each tub containing a different flavour to offer consumers larger variety.

Retailers have now donned the hats of “product selectors” and “product developers” at the same time, points out Third Eyesight CEO Devangshu Dutta. “So far, most of the retailers were just selecting products from vendors which are mostly lower-priced knock-offs of manufacturer brands,” he says. Not any more.

Ashutosh Chakradeo, head (buying, merchandising and supply chain), HyperCity Retail, explains the process his company follows: “To develop food products, we identify vendors, tie up with food laboratories, chefs and consumers to be part of the tasting panels. Before launching a private label we do at least a month of consumer testing. We identify customers from our loyalty programme called Discovery Club, which tells us who buys a certain category of product. We give the relevant consumers our private label products for trial for a month. We meet the customers at their homes, take their feedback and these changes are incorporated into the private label brand.”

“Our stores act as research labs and are a constant source of feedback,” points out Chawla of Future Group. Chawla estimates 3-4 per cent of the sales of private labels are ploughed back into packaging and design innovation. Reliance Retail CEO Bijou Kurien says, “The teams are our main investment in private labels. Our 100-strong designers across all the formats help in coming up with product designs that fill a need gap or offer a few more features at the same price as national brands.” Reliance Retail has recently launched its own brand of watches priced Rs 149-199 which “no national player can offer” points out Kurien.

The edge
Most vendors directly supply to retailers’ distribution centres, cutting out cost leakage at the distributor’s and carrying and forwarding centres. Direct access to store shelves and aisles also cuts out the high mainstream advertising costs that brands have to bear. By clever product arrangements and in-store promotions, retailers can sway the shopper and draw attention to the price advantage. Chakradeo says, “We display private labels in heavy footfall areas in the store. We complement displays — so we keep our private label ketchup near the bakery.”

To tackle the tricky personal care category of face creams and shampoos that Aditya Birla Retail’s More chain has entered, it plans to communicate promotional offers straight to its loyalty programme members. “It will help us induce trials,” says Thomas Varghese, More’s CEO.

Bundling products is another way to woo the value-conscious consumer. Six months back, Future Group started bundling its private brands. Chawla says, “Take home-cleaning, which requires a floor cleaner, glass cleaner, toilet cleaner and utensil cleaner which we combined as a shudhikaran solution of our Cleanmate brand.” The combi-pack costs Rs 125, which would come to around Rs 220-250 if shoppers bought a la carte. The margins are still high at 26 per cent. “Vendors are assured of volumes,” points out Chawla.

What it also does is convert the fence-sitter who has not yet bought into a category. For example, consumers who avail of the shudhikaran solution also get into the habit of using glass cleaners — a category which has a small base and gets most of its sales from modern trade. Similarly, Future Group saw a 25 per cent spurt in the sales of soups when it clubbed soup mugs with its Tasty Treat soup packets based on the insight that Indians preference to sip their soup out of a coffee mug.

Don’t be surprised if you see MNC brands coming out with combo-offers for their products, way bigger than the occasional bucket with a detergent!

Growing up
There are signs the industry is evolving. Private labels in FMCG are shedding their low-cost tags. But retailers know better than to vacate low price-points altogether. Instead, they are segmenting their brands just as a manufacturer brand would do. Chakradeo of Hypercity says, “Over a period, we hope to increase the stickiness and the differentiation our brands bring to our stores. Particularly, in staples where we have seen our private label business grow rapidly. This is a very quality and price-sensitive category. We started with basic products but now we have premium daals (lentils) and basmati rice as part of our portfolio.”

Future Group too has its ‘good, better, best’ policy firmly in place. In staples, the stores offer some products ‘loose’, such as rice, wheat, lentils, which is at the bottom of the ladder. Its Food Bazaar version of the products straddle the middle category, and above the two is its brand, Premium Harvest, which retails at a price higher than some manufacturer brands.

Stickiness may also result from the manner in which retailers are positioning their brands. Future Group’s brand Ektaa will retail regional food and staples across its stores in the country so that migrants can buy supplies they are comfortable with. Be it Govindbhog rice and kasundi (a rice variety and mustard sauce preferred by Bengalis), khakra (Gujarati snack) or murukku (loved by Tamilians). Boston Consulting Group Partner & Director Abheek Singhi says, “Indian retailers are not cut-pasting private label products from other markets but adapting them.”

Are private labels a risk worth taking? Chakradeo says, “The entire product formulation for our cleaners was done in partnership with Dow Chemicals, USA. We did not make any investment and we gave them a percentage of sales as fee. Investments are not huge in making private labels as in most cases it is partnered with vendors. It is more of operating expenses than capital expenditure.”

Future Group brought down logistics costs further by 6-8 per cent by appointing vendors in more than one region for 10 of its product categories to fill its distribution centres. Chakradeo adds, “As the volumes go up, we will be able to put up for backend infrastructure facilities for development and R&D.”

Should national brands be worried? Devangshu Dutta says, “As long as retailers have access to the production and development and have customers for it, the private labels will remain profitable.” India Equity Partners Operating Partner V Sitaram sums up, “In modern trade, though the market leaders will face some slip in market share, the number 3 or 4 brands might have a bigger problem in certain categories thanks to private labels.”

As retailers leverage consumer insights to deploy private labels more effectively, national brands are aggressively fighting the challenge. From sprucing up supply chains to galvanising in-store promotions, they are covering all bases. KPMG Executive Director Ramesh Srinivas says, “Earlier brands had to adjust between a modern trade and a general trade supply chain. The former had to be serviced directly at the stores or had their own supply chain while the latter used the manufacturer’s supply chain. Now, some brands separate modern trade teams and even distributors.”

Britannia Category Director (delight and lifestyle) Shalini Degan says, “We have divided our portfolio into three categories, A,B,C, each having its benchmark fill-rate. We don’t allow fill-rates to drop below those levels. Why the segmentation? We need to focus on brands which have a higher traction in modern trade when servicing it, else we might end up focusing on brands that are not modern trade-led.”

Fill-rates denote how often and to what accuracy the retailer’s orders for a product are supplied by the manufacturer. Low fill-rates could mean lost opportunity since the shopper sees an empty shelf or a private label instead of the brand she might have thought of picking up.

Samsung Vice-President and Business Head (home appliances) Mahesh Krishnan says, “We have gone in for central billing system 4-5 months back with all large-format retailers. Orders are tracked on a daily basis giving retailers more control over the chain.”

In other words, private labels are here to stay and will evolve as more and more chains gain national footprint and the economies of scale kick in. Dutta of Third Eyesight says, “Gross margins for organised retailers are still low compared to global standards: So, margin fights will continue for some time till retailers gain a bigger share of the pie.”

(Also read: The Private Label Maturity Model.)

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Private Label Maturity Model

Devangshu Dutta

January 5, 2010

If we were to look at phrases that have cropped up during the recent recessionary times in the consumer goods sector, “private label” has to be among those at the top of the list.

From clothing to cereals, toothpaste to televisions, there is hardly a category that has not seen retailers trying their hand at creating own labelled products.

The first motivation for most retailers to move into private label is margin. On first analysis, it appears that the branded suppliers are making tons of extra money by being out there in front of the consumer with a specific named product. The retailer finds that creating an alternative product under its own label allows it to capture extra gross margin. Typically the product category picked at the earliest stage of private label development would be one for which several generic or commodity suppliers are available.

At this early stage, the retailer is aiming for a relatively predictable, stable-demand and easily available product whose sales would be driven by the footfall that is already attracted into the store. A powerful bait to attract the customer is the visible reduction in price, as compared to a similar branded product. If the product can be compared like-for-like, customers would certainly convert to private label over time.

However, maintaining prices lower than brands can also be counter-productive. In many products, while customers might not be able to discern any qualitative difference, they may suspect that they are not getting a product comparable to one from a national or international brand. And while private label can drive off-take, the price differential can also erode gross margin which was the reason that the retailer may have got into private label in the first place. Over time, such a strategy can prove difficult to sustain, as costs of developing, sourcing and managing private label products move up.

The other strong reason a retailer chooses to have private label is to create a product offering that is differentiated from competitors who also offer brands that are similar or identical to the ones offered by the retailer. Department stores, supermarkets and hypermarkets around the world have all tried this approach – some have been more successful than others. The idea is to provide a customer strong reasons to visit their particular store, rather than any of the comparable competitors.

Of course, when differentiation is the operating factor, the products need more insight and development, and closer handling by the retailer at all stages. A price-driven private label line may be sourced from generic suppliers, but that approach isn’t good enough for a line driven by a differentiation strategy. In this case, costs of product development and management increase for the retailer. However, to compensate, the discount from a comparable national brand is not as high as generic nascent private label. In fact, some retailers have taken their private label to compete head on with national brands – they treat their private labels as respectfully as a national branded supplier would treat its brand.

So what does it take to go from a “copycat” to being a real brand?

Third Eyesight has evolved a Private Label Maturity Model (see the accompanying graphic) that can help retailers think through their approach to private label, whether their product offering is dominated by private label, or whether they have only just begun considering the possibility of including private label in their product range. The model sketches out a maturity path on five parameters that are affected by or influence the strength of a retailer’s private label offering:

• consumer knowledge and insight
• product design and quality
• pricing
• promotion
• supply chain & sourcing

If you are retailer, I would suggest using the Private Label Maturity Model to clarify where you want to position yourself, and continue to use it as a guide as you develop and deliver your private label offering.

If you are a supplier concerned about private label, my suggestion would be to gauge how developed your customer is and is likely to become, and ensure that you are at least in step, if not a step ahead.

Of course, if you need support, we’ll only be too happy to help! (Contact Third Eyesight to discuss your private label needs.)

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Organic Truth – Facts and Interpretations

Devangshu Dutta

August 18, 2009

Four months ago in this column (“Organic – Hope or Hype?”) I wrote about the need for customers to make themselves aware of the true nature of organic products, and it is time to reopen that discussion.

Food is an emotive subject with us as consumers, food distribution and retail is big business with us as the trade, and agriculture is a sensitive area of governance.

On top of that, studies are seldom exhaustive enough in terms of sampling, duration of the study, establishment of controls etc., and for every study that proves the superiority of organics, you will be able to find counter-studies and opposing arguments.

In recent years brands have tended to make much of their organic certification. Marketers are known for overstatement anyway, and the promotional language used by some implies (or even explicitly states) that these products are superior to other alternatives. Surely, then, the consumer should be willing to pay higher prices for these “better” products?

If only, if only, facts were that straightforward.

In the earlier column I’d written: “We expect organic products to contain more nutrition and be better for our bodies. While this may be true of organic animal products compared to their inorganic counterparts, it has not been demonstrated for plant products, other than anecdotal experience of taste and appearance.” I had also raised the question: if organic foods are no better nutritionally than inorganic and could be as productive for the farmer, are many of the organic brands just skimming the gullible customer while the going is good?

Well, the debate just got messier. Recently a study sponsored by Britain’s Food Standards Agency last month (July 2009) really set the cat among the pigeons. The report was based on review of existing research papers to find out if organic products were nutritionally superior to inorganic products. And their conclusion was that the studies reviewed did not provide enough evidence that organic food is more nutritious.

Well, what the report really said was that on the basis of the limited number of studies that were deemed to be rigorous enough, there was not enough evidence to prove that organic food is more nutritious.

Okay.

Imagine an examiner saying that he does not have enough evidence to prove that a student who has passed did not cheat. Notice, he is not saying that the student actually cheated. But wouldn’t this statement alone raise suspicion in your mind about the student’s integrity?

Unfortunately, newspapers and electronic media sell headlines, and headlines need to be short and snappy. Here are a couple of examples about this study.

• Organic ‘has no health benefits’ (BBC)
• The benefits of “bio” in question (Le Figaro)

These clearly raise questions about any benefit at all from organics.

In the noise, the disclaimers by the team that prepared the report seem to have been ignored. For instance, this one: “It should be noted that this conclusion relates to the evidence base currently available on the nutrient content of foodstuffs, which contains limitations in the design and in the comparability of studies.” The report also states: “This review does not address contaminant content (such as herbicide, pesticide and fungicide residues) of organically and conventionally produced foodstuffs, or the environmental impacts of organic and conventional agricultural practices.”

Like any good research report, it admits that “it is important to recognise the potential limitations of the review process”. And the final line in the Conclusion section of the detailed report says: “Examination of this scattered evidence indicates a need for further high-quality research in this field.”

As a reader or TV viewer, how many of us would be motivated to go to the original source and read these disclaimers as well?

Promoters of organic farming, such as Britain’s Soil Association, of course, have trashed the study saying that it is too narrow having excluded most of the available research papers since they did not meet the review standards, and that it ignored the biggest long-term health impact – that of pesticides and other chemicals used in inorganic produce.

Their opponents, in turn have trashed defendants of organic farming by calling them unscientific and narrow-minded in their own right. They point out that high-output inorganic farming is far more useful to serving the exploding human population, than low-intensity organic farming.

One of the readers of the British newspaper Daily Mail was emphatic that she didn’t “eat organic stuff to get extra nutrition”, but was “happy to pay more to be free from additives”. Certainly that is a significant benefit that motivates most people who are well into organic products. In an unusual open letter, the Chief Executive of the Food Standards Agency clarified: “Pesticides were specifically excluded from the scope of this work. This is because our position on the safety of pesticides is already clear: pesticides are rigorously assessed and their residues are closely monitored. Because of this the use of pesticides in either organic or conventional food production does not pose an unacceptable risk to human health and helps to ensure a plentiful supply of food all year round.”

The other motivation for organics is our attitude towards the environment, which can either benefit us over the longer term or, if we are irresponsible, it could accumulate toxins which only show their impact over decades and generations. But, let’s be honest, are most consumers likely to buy products because of some distant benefit to the environment, or products that benefit themselves immediately?

Possibly the answer lies in the organic sector cleaning up its message.

Are consumers any wiser after this study and the debate? I’m not sure. For now, my take on this issue remains: be aware and make up your own mind about what you want to ingest, because this debate isn’t over yet.