Insight – Supplying India’s growing food and grocery retail sector

Australian food businesses will find a warm reception in India, where the expanding middle class population, modern retail formats and entry of international e-commerce platforms are driving growth in the country’s food and grocery (F&G) retail sector.

According to Boston Consulting Group, India is projected to become the world’s third largest consumer economy by 2025[1]. The country’s economy grew 6.7 per cent in the fiscal year ending March 2018, and 7.7 per cent for the January to March 2018 quarter[2].

Of India’s 1.3 billion population, it is the nation’s rapidly growing middle class that presents Australian F&G producers and retailers with the strongest opportunities. Each year, India’s middle class adds approximately 20 million people to its ranks. There has been an increase in double-income households driving consumption and customer aspiration.

F&G sector set for growth

India’s F&G retail business was worth an estimated US$380 billion as of 2017[3]. The F&G market is reportedly growing at 15 per cent per annum and is projected to double by 2020[4]. The modern food retail sector is valued at 2 per cent of the total market, but this is expected to change significantly by 2025 when the sector is expected to capture at least 3.2 per cent of the F&G market and be worth US$52 billion, growing at a CAGR of 22.5 per cent from current levels.

The volume of food categories imported into India is rapidly increasing. The size of the imported food category more than doubled (x2.65 times) from US$1.7 billion in 2009 to US$4.5 billion in 2015–16[5], despite a strong domestic food processing sector, a changing regulatory environment and high import tariffs of 30 per cent to 50 per cent.

This growth can be attributed to the rapidly growing exposure of Indian consumers to international food concepts, brands and cuisines. Between 2012 and 2016, the number of Indians travelling internationally increased from 15 million to 22 million[6]. The growing diaspora is also making a difference to F&G tastes. There are around 455,000 Indians living in Australia with extended families in India.

According to Euromonitor, a conservative estimated target market for high-quality imported foods is approximately 30 million Indians with propensity to spend over US$30,000 per year, and another 4.8 million Indians with annual incomes in excess of US$150,000 (960,000 households with five members each)[7]. This is a target market for Australian premium F&G.

The dynamics affecting India’s F&G sectors include:

  • a young population with growing affluence
  • a growing middle class who travel internationally and gain exposure to different cuisines
  • international F&G players entering the market and modernising Indian retail
  • growth in imported food categories with dedicated aisle space in modern retail.

India implemented GST in July 2017 and eased regulations for domestic and imported foods. These two developments have helped build synergies across markets, reduced waste and trimmed costs.

E-commerce opens up opportunities

The growth opportunities in India’s F&G sector have attracted interest from major Indian corporations that have diversified into retail with long-term plans for this vertical. Companies such as Tata, Reliance, Adani Enterprise and Bharti have been investing in India’s booming F&G sector.

Along with these retailers, a number of international brands such as Metro and Wal-Mart have entered into the market to set up retail chains in close association with Indian companies. New retail trade formats such as supermarkets and hypermarkets are also stepping up to fulfil the needs of consumers.

E-commerce is also changing Indians’ F&G retail market experience. India has the second highest number of internet users in the world at 462 million[8]. According to an Economist article, every second, three more Indians experience the internet for the first time[9]. By 2030, more than 1 billion Indians will be online[10]. In June 2017, one in four mobiles used in India was a smartphone, up from one in five just six months earlier[11].

The e commerce sector will boom off the back of this giant user base, and Australian companies should start preparing now to take advantage of it. In the past few years, several online grocery retail sites have been launched, including BigBasket (bigbasket.com) and Amazon Grocery (amazon.in) that offer international foods. Amazon India is looking at F&G contributing US$1 billion to its bottom line by 2020.

The Masterchef effect

For the last two decades, India’s food industry has undergone a sea change. People in India like to experiment, and often like to add some kind of ‘India-nisation’ to suit their regional palate. Burgers, pizza and many other international cuisines have made their mark around the country and are often ‘regionalised’ with local spices or flavours.

Twenty-four-hour fast-food outlets are open across India and are exploding in popularity. For example, India is Domino Pizza’s second largest market outside of the US, operating 1,126 stores in 264 cities (as of October 2017)[12]. Other popular restaurant cuisines include Italian, Mexican, Thai, American, Mediterranean, Japanese and Korean.

The ‘cult of celebrity’ has also played a huge role in promoting Australian F&G to Indian consumers. The best known Australians in India used to be cricketers or actors. But that was before the advent of cooking shows like MasterChef Australia. Now heading into its 10th season, its three host judges, Gary Mehigan, George Calombaris and Matt Preston are huge celebrities in India.

MasterChef Australia is a highly popular show in India, taking not only cooking but a bit of Australia into every Indian home. Retail management has indicated that shoppers enter stores and look to repeat menus and recipes from shows aired the previous evening. As a result, retailers have experienced a growth in demand and increase in expenditure for exotic and niche items. Increased exposure to foreign foods and the opportunity to consume them is expected to continue to grow India’s F&G sector.

Popular imported F&G categories

The rise of the middle class has brought a cultural shift in attitude towards health and wellbeing. F&G retailers and producers in these categories can expect an increase in demand. ‘Healthier’ category food versions, for example, digestive biscuits, wheat/oat noodles, multigrain flour, heart and diabetic control edible oils, fortified milk are emerging as popular growth categories. Convenience and on-the-go snacks, including liquid breakfast drinks, will be another popular category among the middle class.

Popular imported F&G products include:

  • Cereals
  • Edible oils
  • Beverages (fruit juices, concentrates, alcoholic beverages, and carbonated drinks)
  • Confectionary items
  • Canned and packaged fruit juices
  • Berries such as cranberries and blueberries
  • Dry fruits and nuts
  • Breakfast cereals
  • Fresh fruits and vegetables
  • Canned and frozen food
  • Preserves, jam, jellies and marmalades
  • Health food products
  • Pasta and noodles
  • Soups, syrups and seasonings
  • Sauces and salad dressings.

Australian F&G businesses interested in exporting to India can contact Austrade for more information. Please provide your product name and HS code, and Austrade will revert with a brief ‘Quick Market Assessment’ outlining the potential of your product in India, competition, tariffs and other recommendations.

Contact Austrade for more information on India’s F&B retail sector.

____________________________
[1]  Boston Consulting Group, India to become third-largest consumer economy by 2025, 21 March 2017, https://www.bcg.com/d/press/21march2017-new-indian-changing-consumer-149010
[2]  Central Statistics Office, http://www.mospi.gov.in/sites/default/files/press_release/nad_PR_31may18.pdf
[3]  USDA Foreign Agricultural Service, GAIN Report, 30 December 2016, https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Retail%20Foods_New%20Delhi_India_12-30-2016.pdf
[4]  As above.
[5]  As above.
[6]  UN World Tourism Organization, India: Country-specific: Basic indicators (Compedium) 2016–2016 (01.2018), https://www.e-unwto.org/doi/abs/10.5555/unwtotfb0356010020122016201801
[7]  Euromonitor, Retailing in India, January 2018, http://www.euromonitor.com/retailing-in-india/report
[8]  Statistica, Countries with the highest number of internet users as of December 2017 (in millions), https://www.statista.com/statistics/262966/number-of-internet-users-in-selected-countries/
[9]  The Economist, India Online, 5 March 2016, https://www.economist.com/leaders/2016/03/05/india-online
[10]  As above.
[11]  As above.
[12]  Statistica, Number of Domino’s Pizza stores in India from 2006 to 2017, https://www.statista.com/statistics/277347/number-of-dominos-pizza-stores-india