Insight – The growing appetite for international food and beverage in India

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 beverage (F&B) retail sector.

According to Boston Consulting Group, India is projected to become the world’s third largest consumer economy by 2025. The country’s economy grew 6.8% in the 2018–19 fiscal year.

Of India’s 1.3 billion population, it is the nation’s rapidly growing middle class that presents the Australian F&B industry with the greatest opportunities. Each year, India’s middle class adds approximately 20 million people to its ranks. Increasing purchasing power, the rise in double-income, no-kids households, and consumers moving away from a saving mindset towards living a better quality life are all driving consumption and consumer aspiration.

F&B sector set for growth

India’s F&B retail business was worth an estimated US$500 billion as of 2018 (up from US$380 billion ^[1] in 2017), according to private estimates.

The market share held by modern retail formats (such as convenience stores, supermarkets and hypermarkets) versus traditional outlets (including market stalls) is expected to double from 2% currently to 4% by 2020, based on developments in 2017–18.

Some of the significant sector developments in India in the last year have included the entry of Lots Group fromThailand, which has opened three stores in the National Capital Region (NCR), and the commitment by 7Eleven to open more stores through Future Group. The sector has also witnessed Spencers Retail’s purchase of the Nature’s Basket chain from Godrej; Walmart investing in Flipkart; and Amazon India in the advanced stages of taking a stake in Foodhall (Future Group). Meanwhile, other modern retail outlets continue with their expansion plans.

The simplification of India’s tax system took a step forward with the 2017 introduction of the Goods and Services Tax (GST), replacing various indirect taxes. The Indian Government has also reduced the time and cost to import by implementing the electronic sealing of containers, upgrading port infrastructure and permitting the electronic submission of supporting documents with digital signatures in 2018–19. These reforms helped India jump to 63rd place out of 190 countries (from 77 the previous year) in The World Bank’s Doing Business 2020 report. In addition, the Food Safety and Standards Authority of India ( FSSAI) has streamlined and simplified the process for imports.

The number of food categories imported into India is rapidly increasing. The size of the imported food category has more than tripled in the last 10 years from US$1.7 billion in 2009 to US$5.3 billion in 2018. This is despite a strong domestic food processing sector and high import tariffs of 30% to 50%.

Globally aware consumers

This growth can be attributed to the rapid increase in exposure of Indian consumers to international food concepts, brands and cuisines. Between 2012 and 2018, the number of Indians travelling internationally increased from 15 million to 25.85 million (estimated to be 27.92 million in 2019).^[2] The growing diaspora is also making a difference to F&B tastes. There are around 800,000 Indians living in Australia with extended families in India and around 100,000 students from India in Australia.

India’s consumer story is being shaped by its 440 million millennials and 390 million generation Z (those born after 2000) ^[3] population. The sheer size of India’s youth combined with improved education paves the way for sustained growth in purchasing power and makes India’s consumer story one of the world’s most compelling for the next 20 years.

According to Euromonitor, a conservative estimate of the target market for high-quality imported foods is approximately 30 million Indians with the propensity to spend over US$30,000 per year, and another 4.8 million Indians with annual incomes in excess of US$150,000 (comprising 960,000 households with five members each). This is the target market for Australia’s premium F&B industry.

In summary, the primary dynamics affecting India’s F&B sector include:

• a young population with growing affluence
• a growing middle class that travels internationally and has exposure to different cuisines
• international F&B players entering the market and modernising Indian retail
• growth in imported food categories with dedicated aisle space in modern retail outlets
• implementation of the GST in July 2017 and eased regulations for domestic and imported foods
• better synergies across markets, reduced waste and trimmed costs.

E-commerce opens up opportunities

The growth opportunities in India’s F&B 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, Spencers and Bharti have been investing in India’s booming F&B retail sector.

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

Significantly, it is e-commerce that is driving the biggest change in Indians’ F&B retail market experience. India has the second highest number of internet users in the world at 451 million.^[4] According to an Economist article, every second, three more Indians experience the internet for the first time. By 2030, more than 1 billion Indians will be online. By the end of 2018, one in two mobiles used in India was a smartphone, up from one in five in 2016.^[5]

E-commerce has given Indians in Tier 2 and Tier 3 cities the ability to purchase products they could not otherwise buy in India. E-commerce has helped leapfrog bricks-and-mortar retail, created entrepreneurs across India and generated commerce and employment.

Australian companies can take advantage of e-commerce and a large user base to test the waters. Australian companies and brands using e-commerce to market to Indian consumers include Capilano, Orgran, San Remo, Sanitarium, SPC, Vegemite and Yes You Can.

In the past few years, several online grocery retail sites have been launched, including BigBasket and Amazon Grocery, that offer international foods. Amazon India is looking at F&B contributing US$1 billion to its bottom line by 2020. While online grocery retailing is the smallest retail channel (representing 5% of total retail grocery sales), it is the fastest-growing retail segment and the one with the highest potential.

Internet retailing is expected to increase by almost 27% in 2019. At present, analysts estimate online grocery sales will reach between US$500 million to a little over US$1 billion, with expectations of sales growing to over US$5 billion in the next three to four years.1 Prospects look good for the sector as the consumer base is made up of millennials and affluent consumers who prioritise convenience and quality over price and who are more open to popular foreign brands.

Amazon first launched its online grocery business in 2016 in Bangalore. As of 2018, Amazon’s grocery business has expanded to 40 cities. Last year, Amazon launched a network of 15 specialised fulfilment centres (warehouses) to increase delivery speeds. These fulfilment centres are equipped with temperature-controlled zones to store and deliver perishables and frozen products. However, the sector continues to be limited to metropolitan cities.

The role of media and the ‘Masterchef impact’

For the last two decades, India’s food industry has undergone a sea change. People in India now like to experiment with different tastes and flavours but often add some kind of ‘Indianisation’ to suit regional palates.

Burgers, pasta, pizza and many other international cuisines have made their mark around the country and are often ‘regionalised’ with local 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 the US, operating 1,200 stores in 271 cities (as of 2018). 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&B to Indian consumers. The best known Australians in India used to be cricketers or actors, but that was before the advent of cooking shows likeMasterChef Australia. Now heading into the 2019 season of MasterChef India, the show’s 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 managers report 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 growing India’s F&B sector.

Popular imported F&B categories

The rise of the middle class has brought a cultural shift in attitude towards health and wellbeing. F&B retailers and producers in these categories can expect an increase in demand. ‘Healthier’ food – for example, digestive biscuits, wheat/oat noodles, multigrain flour, heart and diabetic-control edible oils and 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&B products include:

• Cereals
• Edible oils
• Beverages (fruit juices, concentrates, alcoholic beverages and carbonated drinks)
• Confectionery 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&B 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.