Food Retail (Biscuit Industry)

Group 6
Anuja Hurgat Lourdes Soares Advait Bhobe Kartik Athavale Sudarshan Iyer 12020841069 12020841023 12020841116 12020841077 12020841105

Prabhjit Singh Pahwa

Naman Agarwal Anant Maheshwari

12020841086
12020841031 12020841119

Sectors in Food Retail

Fruits & Vegetables

Alcoholic Beverages

Meat, Fish & Poultry Products

Non Alcoholic Beverages

Dairy Products

Processed Foods

Grocery

Store Formats in Food Retail

Malls
Mall development is phenomenal in India and is spreading fast even to the second tier cities in India. Real estate developers are jumping very fast to take this further from Metro cities to smaller cities and corporate houses like ITC and Sriram group are making steady progress to make this phenomena feasible in rural market also. Large format malls are increasingly getting prominent with adequate retail space allocated to leisure and entertainment. Some states like Punjab have lifted entertainment tax on multiplexes till 2009. With such quantum of new format retail space in the pipeline, innovation, striking the right tenant mix, effective mall management and provision of ample parking space are components that will decide the future success of mall developments. E.g. Haldirams Food Retail Malls

Department Store
A department store offers an extensive assortment (width and depth) of goods and services that are organized into separate departments for the purpose of efficient buying, assortment, promotion and above all ease of shopping for the consumer. Such a format provides the greatest selection of any general merchandize and very often serves as the anchor store in shopping mall or shopping centre. In India, the number of department stores is less compared to other retail formats such as supermarkets and discount stores. Shoppers' Stop is the first one to open a department store in the early 1990s and currently operates 19 stores in 10 different cities in India. Another operator Lifestyle India began operations in 1998 with its first store in Chennai in 1999 and in March 2006 it opened one of the largest department stores in the same city. E.g. Westside Gourmet stores in Westside

Hypermarket
Hypermarkets have emerged as the biggest crowd pullers due to the fact that regular repeat purchases are a norm at such outlets. Hypermarkets not only offer consumers the most extensive merchandise mix, product and brand choices under one roof, but also create superior value for money advantages of hypermarket shopping. With product categories on offer ranging from fresh produce and FMCG products to electronics, value apparels, house ware, do it yourself (DIY) and outdoor products, the hypermarkets are becoming popular formats in India. Number of players operating hypermarket format are increasing day by day. The K. Raheja Corp (C.L. Raheja Group) owns the value retail concept Hypercity which is the countrys largest hypermarket at 1,200,000 sq ft. As the market is expanding and consumers are in a mood to accept changes, hypermarkets are getting an overwhelming response from consumers. As all hypermarkets use food and grocery as crowd puller, the price plays major role.

Supermarket
Supermarkets largely concentrate on selling food related products and are considerably smaller in size compared to hypermarkets. Their value proposition is also different from the hypermarkets. The supermarkets offer relatively less assortments but focus on specific product categories. They do not focus on price rather use convenience and affordability as their salient features. In India this role is played by the provision stores and sweet shops. Traditionally consumers feel conservative to buy fruits and vegetables from air conditioned supermarkets. They prefer to buy either from the local mobile vegetable sellers or from the nearest sabji market. Probably that works as deterrent factor for the growth of supermarkets in India. A supermarket normally sells grocery, fresh, cut vegetables, fruits, frozen foods, toiletries, cosmetics, small utensils, cutlery, stationery and Gift items. In India Food World, Food Bazaar, Nilgiris, and Adani are the leading super market operators. One more retailer Reliance Retail is on the move, Fabmall a part of Trinetra Super Retail Limited is also expanding.

 A Food Store stocks an average of 7,000 stock keeping units (SKUs) and over 50,000 articles. The SKU's are divided into the broad categories - staples, fresh produce and branded foods, home & personal care products. The objective of the store is to offer variety at affordable price in each category. Food Bazaar is made the transition from a just grocery retailer to developing emotional bonding with shoppers by providing some value added services to the shoppers. Some of these initiatives include: Live chakki: which allows customers to buy fresh wheat and have it grinded there at the store Fresh Juice counter: This provides customer to have fresh juices. Live dairy: This provides customers with fresh milk and milk products. Live kitchen: Customers have the option of buying vegetables, getting them chopped, cooked fully or partly. Soups, salads and sandwiches are also available.

Convenience Stores
A Convenience store offers location advantage for the shoppers and provides ease of shopping and customized service to the shoppers. It charges average to above average prices, depending on the product category and carries a moderate number of stock keeping units (SKUs). In India, Convenience stores occupied 23 thousand sq. meter of retail space with sales of about Rs 1347 million in 2005 and are expected occupy 150 thousand square meter of selling space by 2014. During the same period, sales is expected to touch Rs 7000 million and number of outlets are likely to grow from 510 to 3500. Twenty Four Seven- a new format of convenience store is operational in Delhi from June 2005. Twenty Four Seven's portfolio comprises 3,500 stock keeping units (SKUs) of branded fast-moving consumer goods and another 3,500 SKUs of prescription and over-the-counter drugs besides 300 private labels products across food, focusing on staples such as pulses and rice.

Discount Stores
Practically the discounters offer several advantages such as lower price, wider assortment and quality assurance. The discounters like Wal-Mart and Aldi were able to quickly build scale and pass on benefits to the consumer. Though, in the long run success depends on the operational efficiency and consistent value delivery to the consumer. The same retailer Wal-Mart struggles in Asian countries like China but extremely successful in USA. It is believed that the average Indian consumer is highly price-sensitive and looks for savings in term of money in grocery purchase. So price-value equation is a critical component in most of the grocery purchases. There is hardly any national level discount chain operating in India. Due to regulatory issues no such retailers are allowed to sale their products directly to consumer. If these retailers are allowed to operate in India through their retailer stores they may find it extremely difficult in the early stages because of lack of experience in the grocery retailing in this market.

Dollar Stores
Dollar stores have their roots in America's homey five-and-dimes, the general stores that offered a range of products at low prices. But modern dollar-store retailers are having more sophisticated operations; leveraging their growing buying power to strike special deals with vendors and continuously striving for unique advantage of both convenience and price. Some chains sell all their goods at $1 or less. Others offer selected items at higher prices. Most sell a combination of paper products, health and beauty supplies, cleaning products, paper and stationery, household goods, toys, food and sometimes clothing, both private-label and brand-name goods. US based My Dollar Store started operation in Mumbai through master franchise arrangements with Sankalp Retail Value. In September 2005, Mallz99 chain of dollar stores has also started operation in Malviya Nagar, South Delhi.

Retail Development in Rural India

Chennai based market research firm Francis Kanoi estimated the size of the rural market to be INR 1,50,000 crore annually. Rural incomes are growing steadily as well. NCAER shows while the number of middle-class households (with annual income between Rs 1 lakh and Rs 3.5 lakh) is at about 20 million in urban India, the figure stands at about 18 million in the rural areas, data from. In recent times rural retailing is witnessing explorations by both corporate houses and entrepreneurs ITC's Choupal Sagar, HLL's project Shakthi and Mahamaza are some of the models being tried out. The Godrej Adhaar, the rural retail initiative of Godrej Agrovet Ltd operates a chain of 40 stores providing a host of services to farmers and their families and is planning to set up at least 1,000 stores across rural India in the next five years. Apart from Godrej Adhar and Choupal Sagar other formats operating successfully in the rural area are, M & M Shubh Labh stores, Escorts rural stores, Tata Kisan Sansar, and Warnabazaar, Maharashtra (annual sale Rs 40 crore).

Internet Retailing
The importance of internet retailing is growing all over the world. Some internet retailers such as ebay and rediff.com are providing a platform to vendors to sell their products online and they do not take the responsibility of delivering the product to buyer. They provide virtual shopping space to the vendors. On the other hand online retailers like amazon.com and walmart.com have to maintain their warehouse to stock products and take the responsibility of delivering products to the buyer. In India internet retailing is growing by 29% CAGR and Euromonitor report estimates that the a CAGR 48 per cent and in value term it going to touch INR 60 billion by 2015 from INR 4 billion in 2005. The report also predicts that the contribution of internet retailing to nonstore retailing to is likely to be 46 per cent by 2015. E.g. In food retail, Bigbaseket.com in Internet Retailer

Introduction: Indian Biscuit Industry

Indian Biscuit Industry size is Rs. 21213 crore It is the third largest Biscuit Industry in the world Segmentation in the biscuit industry: Less than Rs. 100/kg: Economy segment Rs. 100-125/kg: Middle segment Rs. 125- 150/kg: Premium segment More than Rs. 150/kg: Super-premium segment Economy segment likely to grow at 15-18% annually while premium segment is to clock 30% growth Exports of Biscuits was 14% of the annual production during the year 2010-11 which declined to around 12.5% in 2011-12.

Introduction: Indian Biscuit Industry

Biscuit is a comparatively low margin food product in the PMCG (Packaged Mass Consumption Goods ) sector. The commodity is also price sensitive, as a consequence of which, even when the Excise Duty was doubled on biscuits in 2000-01 biscuit manufacturers, including the major brands, were not able hike MRPs to the extend of the steep increase in the Duty. Rural-Urban penetration of Organized Players in Biscuit Industry: Urban Market: 75% to 85% Rural Market: 50% to 65%

Two Sectors of the Biscuit Industry

1. 2. Biscuit Industry is divided into two main sectors: Organized Unorganized The organized sector accounts for 80% and the unorganized sector accounts for 20% of the total industry volume. The organized sector is valued at above Rs 8000 cores. In terms of volume biscuit production by the organized segment is estimated at 1.30 million tones The organized sector is dominated by Britannia, Parle which accounts for more than 60% of the industrys volume

Industry Metrics
19.6
20 18 16 14 12 10 8 6 4 2 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

16.14 14.29

17.44

18.25 16.57

12.54
11

Annual Production in Lakh Metric Tonnes

Annual Growth
20% 18% 16% 14% 12% 10% 8%
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Annual Growth

Threat of New Entrants: Medium

Small players cannot enter as high entry of barriers in terms of capital intensive production etc. Some other big player might enter

Threat of Substitutes: High

Many variants in the Packaged Mass Consumption Goods segment Traditional home-made snacks making a come back

Rivalry in the Industry: High

A few major players dominate the market High competition Big players have deep pockets and unorganized players cannot compete in budgets

Bargaining Power of Customers: High

Availability of many variants in all prices, quality, tastes etc. Medium brand loyalty

Bargaining Power of Suppliers: Low

Manufacturers are big players and suppliers are small players and unorganized Ingredients are basic commodities like wheat, sugar etc.

Factors leading to growth in Biscuit Industry

New routes to growth: Players have prioritized right markets with right deals

Margin improvement: Managing costs sustainably and getting price right

Execution sharpening: Better consumer insight, branding and marketing effectiveness

Increased adaptability and responsiveness: Optimized business structures

Margins and Growth

Food and grocery retailers typically have a 14 per cent gross margin in India, compared with around 17 per cent in developed markets Gross Margin of Britannia in 2007-08- 10.36% and in 2011-126.79% In FY2011, FMCG sector (other than cigarettes) contributed 15% to total Gross Revenue of ITC

Industry consists of
Major Players Minor Players Emerging Players Foreign Niche Players

Parle Britannia ITC

Surya Biscuits Pvt. Ltd. priyaGold Anmol

Krafts Cadbury Oreo PepsiCo : "protein-rich Aliva launched 2009

United Biscuits(Bitain) Danone (French food giant) Nubisco Unibic (tied up with Food Bazaar launched Tasty Treat

Major Players
BRITANIA INDUSTRIES LIMITED PARLE PRODUCTS PVT LIMITED SURYA FOOD AND AGRO LIMITED

Established in 1896 90% of Britannias annual revenue of Rs2,200 crore comes from biscuits KEY PRODUCTS: TIGER, GOODDAY, BOURBON, 50-50, MARIE GOLD, TIME PASS

Established in 1929 the largest selling brand of biscuits in the world 70% market share in India in the glucose biscuit category KEY PRODUCTS: Parle-G, Hide and Seek, Krack Jack, Monaco, Parle Marie, Milk Shakti, Parle 20-20.

Incorporated 1992Manufacturing and selling of biscuit under brand PRIYAGOLD in October1993. Key products: Classic Cream, Butter Bite, Bourbon, Marie Lite, Magic Gold, CNC

Main Players in Organized Retail, their Distribution and Pricing

Parle
The company has 4 factories, 10 manufacturing units of its own and 75 manufacturing units on contract Parle uses Intensive Distribution for Parle G. This is the ideal strategy for the market leader as intensive distribution has the following advantages:
Increases coverage and sales Increases product availability Encourages retailers to compete aggressive. Higher competition leads to narrower margins for the retails hence Increases the ultimate margin for the manufacturer.

The Channel Members of the Distribution Network of Parle

The Parle distribution network for biscuits has essentially four levels as below:

Parle Depots

Wholesalers and Distributers

Carry Forward Agents (if required)

Retailers

The Channel Members and Logistics

Parle has nearly 1500 wholesalers catering to 425000 retail outlets directly or indirectly. A 200 strong dedicated field force services these wholesalers and retailers. Additionally, there are 31 depots and Carry and Forward agents supplying goods to the wide distribution network. Parle has level 1, level 2, level 3 distribution channels levels.

Distribution Channel Levels

Parle has level 1, level 2, level 3 distribution channels levels. Level 1: Availability of Parle biscuits at all departmental stores across the length and breadth of the country. Level 2: Since it's an FMCG product this channel exists for customers scattered throughout the country. Level 3: Mass consumption and suitable for National and International coverage. For e.g. Parle's international operations consist of serving markets in the Middle East, Africa, South America, Sri Lanka, Australia and North America for which the 3 level distribution channel exists.

Parles Pricing
Parle had earlier adopted the Market Penetrating Strategy i.e low price along with capturing the market. Parle, in order to create large potential market, employs mass marketing for Parle-G. Mass-production, mass-distribution and mass-promotion allows Parle to maintain low-price for Parle while targeting all segments of the market. It is available to customers from big metropolitan cities to the remotest and smallest of villages with population of 1500. However, when compared to its competitors, it has more focus and penetration in rural and sub-urban areas than city areas. The major reason being the strategic location of its manufacturing units, which are closer to rural and sub-urban areas.

Premium Brands of Parle

Parle entered the premium segment in the late-1990s with its chocolate chip biscuits, Hide & Seek. Today, it markets its premium biscuits without the Parle brand name. The rationale behind that is not to dilute the premium image of the biscuits by associating them with Parle, which is synonymous with a mass brand. The premium category accounts for around 8 per cent of overall revenue, but Parle hopes to raise that to 20 per cent in the next few years.

Britannia Distribution Style

Intensive Distribution: As biscuits need to reach the consumer at their nearest locations so this type of distribution channel is used. This type of distribution helps customer look for location of convenience. Britannia products are available in over 3million stores across India. Britannia sells about 6 billion packs of biscuits every year.

Functions of different Entities

Factory

C&FA

Distributor

Retailer

Consumer

Sorting

Allocation

Assorting & accumulation

Britannias Pricing
Some of the price strategies of Britannia are: Market-Penetration Pricing for economy products like Tiger. Product Quality Leadership for products like Good Day and Jam Treat as they are Mid-segment and Premium products Special Event Pricing in festive season

ITCs Distribution System

Company used its existing network of convenience stores for Sunfeast: the hole-in-the-wall pan-beedi shops ITC also looked at grocery stores and other retail formats As per ITC, brand is now available in nearly 1.8 mn outlets

ITCs Key Features in Distribution System

ITC uses FIFO method to reduce the wastage of goods due to expiry. They also keep the good on constant move from low sales are to high sales area. The company collects all the expired goods four times a year, and destroys them. Retailers must return expired or damaged products within six months after the date of expiry.

Strategic comparison

Unorganised Sector
The Indian bakery industry is one of the largest among the unorganized processed food industries. The current estimated market was expected to cross Rs 4,308 crore by 2012. At present, the bread & biscuit industry accounts for 82% of the total bakery products in the country Bakery products which include bread, biscuits, pastries, cakes, buns and rusk, most of which are in the unorganised sector, is estimated to be in excess of 3 million tonnes. The bakery market is divided into the rural market and the urban market. The market share is about 22.5% (rural) and 77.5% (urban) in the country.

Key Challenges in Biscuit Food Retail Sector

Demand Side
Penchant for fresh/home-made and value consciousness : Demand for freshly cooked food over packaged food. So in order to compete in this sector, packaged food players need to drive down prices by almost 35-40% to be comparable on cost with home made food.

Diversity of tastes and preferences : Multiple cultures, languages and religions have a huge bearing on the tastes and preferences

of the Indian consumer.

Willingness to travel : Given the current density of retail outlets in India, retailers will have to motivate the consumer to trade convenience with price, range and ambience.

Difficulties in accessing areas: Difficulty in accessing vast semi-urban and rural markets due to infrastructure bottlenecks

Key Challenges in Biscuit Food Retail Sector

Supply Side
Sourcing base and efficiency:
The fragmented agri -supply base coupled with an inadequate legal framework make it difficult for retailers and food processors to procure quality produce at competitive costs directly from farmers. Big becoming bigger: While many players are entering the retail space in India currently, the growth stage will be characterized by rapid expansion and consolidation among these players.

Rise of organic foods and health and wellness segment: There will be an increase in health consciousness in the future. Organic foods and wellness products would be emerging opportunities in the years to come.

Increasing focus on private labels: As competition in the organized retail market increases, discounts and promotions are expected to play a critical part in generating footfalls

Critical Success Factors

Competitive Pricing Packaging & Shelf space

Price-Value Quotient Indian consumers driven by Price-Value Quotient. This requires the right balance between the offering of the product and the level at which it is priced.

Strategic Location They must be strategically located in retail outlets to maximize visibility and thus, sales.

Smaller SKUs In the Indian context, considering the current low consumption levels along with the price-sensitivity, theres a need to introduce smaller SKUs to induce usage and attract a larger Consumer base.

Unifying Packaging Scheme Since majority of these biscuit purchases are impulsive decisions, these products must have a unifying packaging scheme that establishes a brand image.

Critical Success Factors

Distribution Systems
Service to customer Efficient Distribution systems are critical if the manufacturers wish to provide a high degree of service to their customers.

Product Quality
Breakage One of the biggest complaints amongst Biscuit-eaters was Breakage. Purchasers would be irritated if they purchased a pack of biscuits that were almost inedible because the product had basically been reduced to a sack of crumbs. As a result, successful performance in the industry requires producers to emphasize producing a quality product.

Based on Demand Based on the importance of shelf space in the industry and that every customer needs biscuits on a weekly basis (and, sometimes, even on a daily basis), manufacturers cannot succeed in the industry without proper levels of service and distribution.

Critical Success Factors

Product Innovation & the Diversification of Products
Correct Size & Variety Based on the impulsive nature of consumers buying habits and the short shelf life in consumers homes, biscuit manufacturers need to have the correct size of a product as well as a variety of products to attract the attention of consumers. Flavours Regional Flavours is something the companies could work towards. Innovation in packaging and product usage is an important success factor for processed foods.

Brand Competitiveness & Awareness

Competitiveness & Awareness With promotional activities, it is critical to educate the consumer and raise awareness about the quality, value and usage of product.

High Decibel Advertising Many brands have been able to work towards the top of their respective categories, through their heavy expenditure on advertising on different platforms.

Future Trends
Changing patterns in Rural Consumption
- Nearly 55% of the biscuits are consumed by the rural sector.
say it is - Given the smaller pack-sizes available and their strategic pricing, many abound to increase.

Changing Consumerism
- Despite economic worries, the industry is expanding its customer base while

other food service sectors continue to suffer. Consumers are now willing to spend moderately and demand high quality for every rupee they pay. Retail formats are going to be great platforms for product push in the near future

Best of Both Worlds:

Commenting on the future trends in the Biscuits Industry in India, Vinita Bali (MD, Britannia Industries Ltd) said, Today, there is a greater consumer choice both at the local and national level, together with a diversity of tastes & benefits ranging from Health & Nutrition to Pure Indulgence. Agreeing with her, many experts feel Indian consumers are steadily moving towards increased consumption of premium biscuits. As per their analysis, Cookies and Sandwich-biscuits will continue to perform well in future. These categories are expected to see more product launches over the forecast period. Apart from the above trend, more action is expected in the health and wellness segment, due to increasing concern about lifestyle-related ailments. There will be more products on the market which are naturally healthy. Many biscuits, which are good for health, but are not advertised as such, will see a change in their marketing pitch. E.g. Marie biscuitss Health Quotient isnt advertised very often.