Assignment 1 (Strategic Financial Management)

ON

Business plan for establishment of business (Salty snack industry)

SUBMITTED BY-

RICHA JAIN (MFC II) Roll No. 2445

Contents

1. Introduction.2 2. Salty snack market in India5 3. Competitive analysis..6 4. Macroeconomic indicators8 5. Profile of promoters9 6. Location of the factory..10 7. Details of the factory.11 8. Financial analysis13 9. Product details20 10. Packaging21 11. Distribution network22 12. Future of snack industry22 13. Road ahead22 14. Key observations23 15. Bibliography24

Introduction
The food processing industry in India is a sunrise sector that has gained prominence in recent years. Availability of raw materials changing lifestyles and relaxation in policies has given a considerable push to the industrys growth. This sector is among the few that serves as a vital link between the agriculture and industrial segments of the economy. Strengthening this link is of critical importance to improve the value of agricultural produce; ensure remunerative prices to farmers and at the same time create favourable demand for Indian agricultural products in the world market. A thrust to the food processing sector implies significant development of the agriculture sector and ensures value addition to it. The Indian food processing industry holds tremendous potential to grow considering the still nascent levels of processing at present. Though Indias agricultural production base is reasonably strong wastage of agricultural produce is sizeable. Processing of fruits and vegetables is a low 2% around 35% in milk 21% in meat and 6% in poultry products. By international comparison these levels are significantly low - processing of agriculture produce is around 40% in China 30% in Thailand 70% in Brazil 78% in the Philippines and 80% in Malaysia. Value addition to agriculture produce in India is just 20% wastage is estimated to be valued at around US$ 13 bn (Rs 580 bn). India with an arable land of 184 mn hectares is the highest producer of milk in the world at 90 mn tonnes p.a. second largest producer of fruits & vegetables (150 mn tonnes) third largest producer of foodgrains and fish and has the largest livestock population. Considering the wide-ranging and large raw material base that the country offers along with a consumer base of over one billion people the industry holds tremendous opportunities for large investments. The industry is composed of six key segments:

Source: KPMG

India offers very favourable factor conditions to enable the food processing sector to flourish High availability of land India ranks first in the world in irrigated land area and second in overall arable land area Ample availability of marine and fresh water fish through the long coast line of over 7000 kilometres several large rivers and lakes India ranks first in availability of cattle Ranks first in availability of milk pulses and tea and second in fruits vegetables rice and wheat Low cost of labour production costs in India are estimated to be 40% lower than in developed markets

These factors have not only helped the domestic market to grow but have also boosted exports. All the key segments offer potential for investment and growth. The segments can be assessed for attractiveness based on size growth penetration levels and level of organization.

Source: KPMG

SWOT Analysis of FoodProcessing Industry

Strengths

Abundant availability of raw material Priority sector status for agro-processing given by the central Government Vast network of manufacturing facilities all over the country Vast domestic market

Weaknesses

Low availability of adequate infrastructural facilities Lack of adequate quality control & testing methods as per international standards Inefficient supply chain due to a large number of intermediaries High requirement of working capital. Inadequately developed linkages between R&D labs and industry. Seasonality of raw material

Opportunities

Large crop and material base offering a vast potential for agro processing activities Setting of SEZ/AEZ and food parks for providing added incentive to develop greenfield projects Rising income levels and changing consumption patterns Favourable demographic profile and changing lifestyles Integration of development in contemporary technologies such as electronics material science bio-technology etc. offer vast scope for rapid improvement and progress Opening of global markets

Threats

Affordability and cultural preferences of fresh food High inventory carrying cost High taxation High packaging cost

Salty Snack market in India

The Indian snacks market is worth around US$ 3 billion with the organised segment taking half the market share and has an annual growth rate of 15-20 per cent. The unorganised snacks market is worth US$ 1.56 billion with a growth rate of 7-8 per cent per year. There are approximately 1000 types of snacks and another 300 types of savouries being sold in the Indian market today. Potato chips and potato-based items are the most popular products with more than 85 per cent share of the salty snack market Snack food may be broadly classified as: 1. Chips Wafers Crisps These include deep fried potato chips strips sticks rings etc. and represent a substantial share of the snack food market. Banana wafers jack fruit chips tapioca wafers which are popular in South India also fall into this group.

2. Extruded Food These are of two types: The traditional items made from flours and spices and extruded in the form of sticks strips or spirals such as sev boondi papdi gathia chakli etc. These items traditionally prepared in households are now marketed in pre-packed forms with different flavours and seasonings. The non-traditional pre-formed partly cooked pellets derived from potato starch from cereals and fried at high temperatures for a short time to give expanded light textured products. This group also includes cereal / potato powder mixes which are extrusion cooked and enrobed with oil and flavor. Many of these products are highly flavoured with spices herbs or cheese. Typical examples are cheese balls cheetos kurkure etc. A large number of products are available in this category and display varying sizes shapes and textures.

3. High Value Items These are roasted / fried / salted / flavoured nuts such as peanuts cashewnuts almonds etc.

Competitive Analysis
The key players in the salty snack industry in India are: 1. ATOP Food Products Indian snack food manufacturer in Gujarat producing potato chips namkeen chatapata and sweets with strong presence in the Western part of India. 2. AUEVSS Limited AUEVSS Limited is a recently established Indian potato chip processing company by potato growers and they use this fact to create tracebility. The company sells potato chips using the brand name Fryo potato chips. AUEVSS is a subsidiary of Bhagatji Cold Storage. 3. Balaji Wafers Pvt Ltd Balaji Wafers is one of the larger potato chips producing companies in India with a high market share especially in Gujarat. 4. BB Foods BB foods (Bankey Bihari Ji Food Products (P) Ltd.) is a company manufacturing pre-fried frozen french fries a range of frozen vegetables curries and snacks like crisps from India. 5. Bikanerwala Foods Pvt Ltd Bikanervala Foods Pvt Ltd is the manufacturer and marketer of the Bikanervala and Bikano branded Indian style sweets and savory snack products. 6. Britannia Britannia is one of the leading one the biscuit brands in the country. They have ventured into the salty snack segment with the view of diversifying their portfolio and reduce dependence on one segment. 7. Frito Lays Frito-Lay is the largest Potato Chips manufacturer in the world. Fritolay's brands include Lay's Walkers Smith's Stax Ruffles and many more. Frito-Lay is a subsidiary of Pepsico. 8. Haldirams Haldiram's is one of the larger chips and snack manufacturer's in India. Haldiram's is also diversifying into fast food retail chains all over India. 9. ITC ITC Limited is an Indian telecommunications giant and cigarette manufacturer diversifying in Consumer Packaged Goods market including the snack foods sector. Brand names: Bingo. Bingo

managed to capture an 11% market share of the Indian snack market within 6 months of its launch. 10. Manpreet Foods Pvt Ltd A company with a background in industrial gases Coal trading and business in Real Properties diversified into the processing of snack foods i.e. Potato Chips & RTE Snacks (Extruded snacks). Manpreet Foods markets their range of products under the "ME2" brand. 11. Nanaji Namkeens Udyog Pvt Ltd Nanaji Namkeen established in the year 1975 is a traditional namkeensweets and potato wafers producing company in India catering to the masses largely in DelhiRajasthan and even south India. 12. Natraj Foods Natraj Cold Storage and Food Pvt Ltd is a manufacturer of snacks including potato snacks in India. Natraj Foods sells its snacks using brand name "Lip Chip". 13. Potatoking Foods Ltd Potato King Foods is an Indian manufacturer of dehydrated potato products (potato flakes potato flour potato powder potato granules) and potato chips. Potato King Foods is located in West Bengal. 14. Parle Agro Pvt Ltd Parle Agro a well known Indian brand had entered the salty snack segment with Musst chips and the baked snack under the brand name of Hippo 15. Samrat Samrat is an Indian Snack food manufacturer located in Gujarat. Samrat manufacturs a range of 25 snack food products. 16. SM Dyechem Ltd SM Dyechem Limited has activities in three segments: Meal and Oil Snack Foods and Others. In the snack segment they produce a range of ready-to-eat pelleted and extruded snack products under brandnames such as Peppy Piknik and Senor Pepito. According to datamonitor they were the #2 player in the Indian savory Snack market in 2005. 17. SM Foods Pvt Ltd Indian manufacturer of a range of extruded snacks

Macro Economics Indicators

The table below gives an overview of the macro economics indicators and salty snack market for the various states in India:
Eco Size 183.12 88.36 83.09 152.52 73.65 132.20 89.45 337.03 125.05 50.70 52.24 121.78 98.57 167.18 222.96 189.49 2604.00 Eco Cnt 0.08 0.04 0.04 0.07 0.03 0.06 0.04 0.16 0.06 0.02 0.02 0.06 0.05 0.08 0.10 0.09 1.00 Eco Gr% 0.10 0.06 0.10 0.14 0.11 0.09 0.09 0.12 0.09 0.09 0.12 0.08 0.09 0.07 0.08 0.10 0.08 Literacy 60.47 47.00 81.67 69.14 67.91 66.64 90.86 76.88 63.74 63.25 63.08 69.65 60.41 73.45 56.27 68.64 64.84 Pop 76.20 109.95 13.85 50.67 21.15 52.85 31.84 96.88 81.15 38.80 36.80 41.55 56.50 63.40 174.70 80.20 1028.74 PCI 11333 4635 29231 16779 15721 13141 12109 16479 8383 8751 6487 18000 8571 12976 5702 11612 11799 Salty Size 5743.66 4413.00 16467.06 16352.02 7773.84 5394.95 1781.68 15181.83 5707.75 5855.21 2021.03 15800.62 6660.07 5855.55 22572.02 7738.66 150803.04 Salty Con 0.04 0.03 0.11 0.11 0.05 0.04 0.01 0.10 0.04 0.04 0.01 0.11 0.05 0.04 0.16 0.05 1.00 Salty Gr% 24.44 21.90 14.85 20.12 21.69 24.66 36.34 22.28 18.50 22.10 22.48 21.85 16.80 36.99 23.59 15.94 22.07

AP Bihar Delhi Gujarat Haryana Karnataka Kerala Maharashtra MP NE Orissa Punjab Rajasthan Tamil Nadu UP West Bengal All India

The company has decided to cater to market in the Delhi NCR region. The factors considered by the company to choose this region are as follows: The Delhi NCR region has the highest per capita income of Rs. 29231. As the region is home to mostly mid and high income groups the demand for salty snacks is expected to be strong. Also the city has one of the highest population density in the country which represents an opportunity for the company. The size of the salty snack market is second largest in the country which represents strong demand from the consumers in the area. There are not many local salty snack manufacturers in the region compared to Western states like Maharashtra and Gujarat. The salty snack market in the region is expected to grow at the rate of around 15% The high literacy rate in the city indicates that the level of awareness among the residents is high and is therefore a good market for the new healthy baked snacks offered by the company.

Profile of the promoters

Ms. Advika Jain Ms Advika Jain is a chartered accountant by profession and also an IIM A alumni. Before starting this company, she was holding a position of Vice President, Asia Pacific of Standard Chartered Bank. She has a wealth of experience in the area of finance which includes an assignment of around 2 years with IMF.

Mr. Ankur Mahindra Mr. Mahindra holds Bachelors degree in Arts and Masters degree in Philosophy, Politics and Economics from the University of Oxford. He is a fellow member of Institute of Chartered Accountants of India and Institute of Chartered Accountants in England and Wales and also an associate member of Institute of Taxation in England. Prior to joining this company, Mr. Mahindra worked as the Managing Partner of M/s A. F. Ferguson & Co., a leading Audit Firm and as the Co-Chairman of Deloitte, Haskins and Sells in March, 2008.

His area of Specialisation includes audit, business consultancy, business valuation, corporate management, financial management, pre-acquisition studies, corporate law etc. He was involved in audit and taxation of wide selection of Indian and multi-national clients.

Mr. Vishal Poddar

Mr Poddar holds a Bachelors Degree in Pharmacy and Masters Degree in Food Biochemistry and developed his earlier career in the Technical and R&D functions. He has a distinguished international record, highlights being postings in USA, France and Philippines. His last posting was as head of the Food Strategic Business Unit(SBU) for Asia Pacific Region.

Location of the factory

The location of the factory has to be decided considering both the location of raw material as well as the target market. Other factors to be considered include infrastructure facilities tax incentives if any availability of cheap and skilled labour etc. Keeping the above factors in mind the company has decided to set up manufacturing plant in Faridabad Industrial Area. Raw Material: The raw material required is potatoes for the chips and besan and lentils for the protruded snack. The company aims to source these raw material from the Agra market which is the wholesale market closest to the factory. After the construction of the Delhi Agra highway the transportation of the raw material to the factory is now very convenient. 10

Customers: The company intends to sell mainly in the Delhi NCR region. Keeping the factory in close vincinity of the customers would help to reduce the cost of logistics for the company and would positively affect the bottom line of the company. Infrastructure: Faridabad offers an excellent infrastructure base for setting up the manufacturing facility. The following projects which are underway/in the pipeline are pointers to the potential of infrastructural development in the District:

Badarpur Flyover Six lanning of NH-2 Extension of Metro Rail upto Faridabad Western Express Highway linking Kundli to Palwal via Manesar Kalindi Kunj bypass providing easy access to NOIDA (U.P.) Eastern Express Highway from Kundli to Palwal via NOIDA.

Haryana State Industrial Development Corporation Haryana Urban Development Authority and the Directorate of Industries have developed industrial estates having more than 1500 plots spread all over the district. Haryana is rated today as the best State in India by the Centre while monitoring Indian Economy on the basis of survey conducted by it so far as infrastructure facilities are concerned.

Details of the factory

The issue to be addressed here is to decide on the type of plant that results in minimum operational costs without any compromise on the quality of the products. As the products will compete with well known international brands in the market special emphasis needs to be given to quality aspect when choosing the type of plant. The two main decisions to be taken here are: Whether to buy or lease the machinery Whether the machine should be capital intensive or labour intensive

The company has decided to buy a fully automatic plant from a leading international manufacturer FMC Technologies. With the Potato Processing Machine (PPM) Chips Line a cost effective and complete integrated processing system the operations are kept on an efficient assembly line process. After destoning and washing the potatoes enter the Continuous Abrasive Peeler for peeling and brushing.

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The raw materials then move to the cutting/slicing unit where the Slice Washer does its job effectively. From here the potatoes move into the Multi-Turbulence Blancher a closed chamber that carefully blanches each potato slice with its cross circulation water bath. The main objective of the operation is to leach out sugar since the amount of sugar affects the final colour of the chips. Next to this unit is a High-Speed Fryer Infeed that separates the sliced potatoes into individual slices before they enter the fryer. Finally the sliced pieces enter the PPM Frying System. This multi-flow system fryer adds and removes the frying oil at several points in the unit. This is done to ensure a uniform temperature and gentler flowrate (to prevent further breakage). The Defatting Unit lowers the fat content of the chips from by means of high-pressure steam. After salting and flavouring the chips finally proceed to the packaging line. The entire PPM Chips Line is made of stainless steel and as such is unbeatable in terms of maintenance characterised by easy cleaning and operating efficiency.

Apart from this conventional potato chips machinery the company has also setup infrastructure for manufacturing of baked snacks for the health conscious segment of the market. This machinery will be semi automatic and will be bought by the promoters of the company.

Structure of the company

The company will start as a private limited company. As the company expands and the operations of the company grow it can convert itself into a public limited company and could also consider going for a public issue.

Financing
As the company requires a high initial investment for setting up of the business the company intends to go for a mix of promoters capital and debt for the financing of the project. Even though the company is likely to face competition from the existing players in the market but as the salty snack market is growing fast the company is expecting a loan from the bank under the SME category. The risk associated with the business is also relatively low as this is an impulse product with low brand loyalty and small wallet share of the consumers. The owners of the company have decided to finance the establishment of the manufacturing facility and the related costs themselves. However they will approach a bank for their working capital financing.

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Financial analysis of the company

The projected financial statement of the company is as follows: Projected Income Statement Particulars INCOME Schedule No. For the year ended 31 March 2012 For the year ended 31 March 2013

Sale volume Revenue EXPENDITURE

441,365,647 441,365,647

582,679,612 582,679,612

393644984 Cost of goods sold Personnel costs Depreciation Interest and finance charges Administrative and other expenses 8 9 7 282661736 1,922,493 45071119 2,694,144 92,196,644 424,546,137 16,819,510 16,819,510 2,212,801 47485198 5,140,650 97,576,005 546,059,638 36,619,974 36,619,974

Profit before prior period items and tax Prior period income Profit before tax

Tax expense @ 30%

5,045,853

10,985,992

Net profit after tax Profit carried to the Balance sheet

11,773,657 11,773,657

25,633,982 25,633,982

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Projected Balance Sheet Schedule Particulars No. SOURCES OF FUNDS As at 31 March 2012 As at 31 March 2013

Share capital Reserves and surplus Unsecured loan

1 2 3

293,226,343 11,773,657 154,000,000 459,000,000

279,366,018 37,407,639 154,000,000 470,773,657

APPLICATION OF FUNDS Fixed assets Gross block Less: Accumulated depreciation Net block 4 300,474,129 45,071,119 255,403,010 316,567,987 47,485,198 269,082,789

Current assets, loans and advances Inventories Sundry debtors Cash and bank balances Loans and advances

5 65,821,546 34,837,667 125,599,640 3,253,765 83,725,732 40,986,985 105,599,640 3,253,765

229,512,618

233,566,122

Current liabilities and provisions Current liabilities Provisions

6 22,029,519 3,886,109 14 27,411,535 4,463,719

25,915,628 Net current assets 203,596,990 459,000,000

31,875,254 201,690,868 470,773,657

Schedule 1: Share Capital Particulars 2,012 2013

Advika's capital Ankur's capital Vishal's capital Total share capital

73,306,586 117,290,537

69,841,505 129,746,407

102,629,220 97,778,106 293,226,343 297,366,018

Schedule 2: Reserves and Surplus Profit and Loss Account Opening balance Add: Profit for the year 11,773,657 11,773,657 2,012 2013 11,773,657 25,633,982 37,407,639

Schedule 3: Secured Loan Particulars Working capital loan 2,012 154,000,000 154000000 2013 154,000,000 154000000

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Schedule 4: Fixed Asset Particulars As at 1 April 2012 Plant and machinery Land and Building Furniture & Fixture Gross Block Additions* As at 31 March 2013

183,476,000

7,075,401

190,551,401

41,569,539.00

41,569,539.00

35,612,987

2,718,340

38,331,327

Computers

21,759,003

4,375,110

26,134,113

Vehicles

18,056,600

1,925,007

19,981,607

Total

300,474,129

16,093,858

316,567,987

Depreciation As at 1 April 2012 For the year As at 31 March 2013 As at

Net Block As at 31 March 2012

31 March 2013

27,521,400

1,061,310

28,582,710

155,954,600

161,968,691

6,235,431 5,341,948

407,751

6,235,431 5,749,699

35,334,108 30,271,039

35,334,108 32,581,628

3,263,850

656,267

3,920,117

18,495,153 16

22,213,996

2,708,490 45,071,119

288,751 2,414,079

2,997,241 47,485,198

15,348,110 255,403,010

16,984,366 269,082,789

Schedule 5: Current Assets, Loans and Advances Particulars As at 31 March 2013 As at 31 March 2012

Inventories

Traded goods Goods in transit Contracts in progress Less: Provision for obsolete stock

38,976,100 19,488,000 7,357,446 65,821,546

47,124,290 24,512,900 12,088,542 83,725,732

Sundry debtors (Unsecured and considered good unless otherwise stated) Debts outstanding for a period exceeding six months Other debts 9,054,780 25,782,887 34,837,667 Cash and bank balances 12,487,200 28,499,785 40,986,985

Cash in hand Balance with scheduled banks - on current accounts - on term deposits

250,620

184,620

86,952,000 38,397,020 125,599,640 17

75,416,970 29,998,050 105,599,640

Loans and advances (Unsecured and considered good unless otherwise stated) Advances recoverable in cash or in kind or for value to be received * Special additional duty/ cenvat recoverable Interest accrued and due

1,647,900 1,045,823 560,042 3,253,765

1,647,900 1,045,823 560,042 3,253,765

* includes travel advance given to director Rs. 278,945 (Previous year Rs. Nil), maximum amount due during the year Rs. 278,945 (Previous year Rs. 122,088)

Schedule 6: Current Liabilities and Provisions As at 31 March 2013 As at 31 March 2012

Particulars Current liabilities

Sundry creditors Interest accrued but not due Other liabilities**

17,246,040 932,180 3,851,299

19,874,352 1,063,780 6,473,403

22,029,519 **includes Provident Fund payable Rs. 1,236,553 (Previous year Rs. 1,576,471) Provisions

27,411,535

Provision for gratuity Provision for leave encashment Provision for warranty 18

1,520,436 587,999 838,720

367,682 459,050 984,815

Provision for unscheduled spares

938,954

2,652,172

3,886,109

4,463,719

Schedule 7: Personnel Cost For the year ended 31 March 2013

Particulars

For the year ended 31 March 2012

Salaries, wages and bonus Contribution to provident and other funds Staff welfare Contribution to employee gratuity fund Employee compensation cost

1,780,142 64,702 22,407 45,390 9,852 1,922,493

2,089,961 61,561 23,851 35,870 1,558 2,212,801

Schedule 9: Interest and Finance Charges For the year ended 31 March 2013

Particulars

For the year ended 31 March 2012

Interest on loan Bank charges

2,030,000 664,144 2,694,144

4,060,000 1,080,650 5,140,650

Schedule 10: Administrative and other expenses Particulars 19 For the year ended

For the year ended

31 March 2012

31 March 2013

Travel and conveyance Lease charges Insurance Repairs and maintenance - others Legal and professional Printing and stationery Postage and courier Telecommunications Rent Power and fuel Business development Warranty costs Bad debts written off Rates and taxes Miscellaneous expenses

8,975,246 4,778,358 3,435,132 4,353,836 2,174,832 3,055,789 709,869 7,863,260 37,298,559 1,766,273 3,561,857 6,567,892 921,679

9,341,230 5,105,869 3,823,886 4,343,710 3,766,679 3,490,753 836,270 1,948,646 40,200,762 1,845,125 3,537,722 7,867,486 5,049,072

136,548 288,541 6,597,514 92,196,644 6,130,254 97,576,005

Product Details
The company has decided to launch 4 different types of snacks namely potato chips, baked crackers, khakhra and namkeen under the brand name Krissps. The guiding factors while deciding the product are as follows: An easily available ready to eat snack Value for money for the customer 20

It should not contain high calories and should preferably be non fried Something to munch on when hungry but should not be heavy on the stomach or lead to loss of appetite Tasty and crunchy Easy to store Branded

The flavors have been given easy to remember and catchy names. The products are available in the following flavors: Plain salted, Funky tpmato and Paneer Tikka masala (For potato chips), Normal and Diet khakhra, Chilli cheese and Punjabi masala (Baked crackers)

Packaging
Each of the flavors will be available in the packaging of four different sizes: 100 gm, 200 gm, 500 gm and 700 gm. The package will be designed with vibrant colors. The pricing will be: Rs. 30 for 700 gm; Rs 25 for 500 gm; Rs 15 for 200 gm and Rs. 5 for 100 gm. The 100 gm pack is mainly for first time buyers, travelers and children. The 200 and 500 gm packs are for munching for individuals when they feel hungry in between meals. The 700 gm pack is for party with friends and family or sharing with others.

Distribution Network
The company believes that distribution network is one of the key success factors in the industry. Salty snacks are mainly an impulse products and it is believed that the customer will buy the product only if they see the products. So the company aims to create long term relationship with their supply chain through offering better margins, and other facilities. KRISSPS will be available at all confectionery shops, local kirana shops, shopping malls, tea stalls, phone booths, juice centres to increase the visibility factor of the new brand. It will not be stacked inside the store but will be stapled at counter in a row and hung outside shops tp grab the eyeballs. It will also be placed at counter shops as most of the buying decisions are made inside the store. The company has decided to enter into exclusive agreements with cinemas and other student hangout places for selling of the chips. The company will offer attractive margins to these parties to gain the contract. This is likely to boost the sales of the company to a great extent.

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Future of snack industry

The greatest scope for innovation in the "immediate future" is with respect to the quasi-meal and snacks. With lifestyles having undergone a radical change the consumer is in need of (and is willing to spend on) new processed alternatives in both these areas - options that offer convenience variety health as well as indulgence. Growth is being driven by healthy low-fat low-calorie snacks while snack foods positioned as trans-fat free are also likely to soar in popularity However the snack foods sector may come under pressure facing competition from convenience foods. A growing percentage of the global population in both developed and developing countries is replacing light meals with snacks. Convenience foods manufacturers could therefore market some of their products as snacks to try and gain more market share. A report by AC Nielsen India (Retail) estimates that this category of food has a fair chance of growing by about 25% in the next two years due to various reasons like Multiplex culture snacking at home while watching TV pubs and bars (where they are served free). AC Nielsen's retail audit shows that the large sales volumes are due to a marked preference for ethnic foods regional bias towards indigenous snacks and good value-for-money perception..

Road Ahead
After establishing a brand in salty snack segment and gaining a reasonable market share, the next step for the company would be an entry into the RTE segment. An RTE is defined as food that is pre-prepared cooked and preserved in a form which can be consumed very quickly with minimal effort. At best it will have to be heated not beyond 5-7 minutes. Hence it is a food in form and shape that is easily consumable but at the same time it is not a snack like a packet of chips. RTE further comes in four different types: frozen chilled preserved/canned and dried. However globally RTE is available in two types: frozen and chilled.

The ready-to-eat (RTE) market in India is expected to grow to Rs 2900 core in size by 2015 from a mere Rs 128 crore in 2006. By then the size of the RTE exports market is expected to touch $16 million said a recent study by Tata Strategic Management Group (TSMG). Raju Bhinge CEO Tata Strategic Management Group said there 22

was a huge untapped market opportunity arising due to rapid demographic shifts in income urbanisation and proportion of urban working women in India.. While the current consumption base estimated by the Tata Strategic report is less than 3% of the total base -- just about 5.4 million households residing in the top 24 in SEC A and SEC B cities -- the target market by 2015 is expected to be over 25 million households a 400-plus % growth in 7-8 years. Pankaj Gupta practice head consumer and retail Tata Strategic said: "What we will see in the coming years is a two-fold growth in the category of consumption. The study also indicated that the RTE meal itself needed clarity as a concept considering there were other related categories available in the market that are misunderstood to be a ready-to-eat product. The entire packaged foods space can be split into 3-4 different buckets. One that is related to ready-toeat then there is ready-to-cook (could be a cake mix a pasta mix where the ingredients are provided and you will only have to heat boil microwave) and then there are other packaged foods like dairy products snacking bakery/biscuits products etc.////////////////////////////////////////////////////////////////////////////////////////////////////////// // The drivers of this enormous growth in the ready-to-eat meals segment are: Acceptability Affordability Availability.

"This apart the cost implications are fairly higher compared with cooking the same meal at home" said Gupta. But things are changing. Some of the other factors contributing to RTE meal growth will be disposable incomes diminishing culinary skills and the rising need for convenience on the demand side.

Key Observations
The nature of the food processing industry and the experiences of successful Indian and MNC players indicate the following key success factors for growth in this sector:

Effective distribution network and supply chain. Product range that is customised to suit local market requirements. Superior processing technology. Brand building and marketing.

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Bibliography
o o o o o o o o o o o o o o o o o o o o o Munch Magic article in Business Standard Chip off the old block case study done by Asia Pacific Food Industry The amazing story of ITC rise on rediff news Eating habits: following the Indian consumer mind Economic Times Haldiram: an icon in the food processing industry FnBnews.com India to have a big slice of global snack market report by TNN dated 8 march 2008 Bitter fight in snack market Fnbnews.com Big growth for RTE FnBnews.com Snack market is worth 100 bn article by FnBnews.com Snacks to boost demand in packaged food sector: Study article by The Hindu Business Lin Report on Food Processing By KPMG and IBEF Foreign firms seek a bite in Indias $90bln food market by Reuters ITC Pepsico battle it out in wafer Lessons in repositioning Britannia case study by Business Today Food and Beverages survey by FICCI A smart cookie article by Hindu business Line After Minto its Candyman from ITC Article by Hindu Business Line Key ratios of Cadbury Nestle Britannia by Rediff business www.smfoods.com www.itc.com www.balajiwafers.com

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