The Indian market has been witnessing the entry of many brands offering a host of products across various processed food categories. As the market matures and consumers become more convenience driven, one segment, which has evolved significantly is frozen ready-to-cook/eat. It is slated for deeper market penetration and entry of more players and products. It is also forcing modern retail chains and standalone grocery stores to focus on quality offerings
Psychographic transformations are always accompanied by changes in the food basket. Over the last ten years, shift in consumers’ shopping pattern at the grocery store indicates that consumption is being driven by processed foods.
The Indian food processing industry ranks fifth in terms of production, consumption, export and expected growth, and accounts for 32 percent of the country’s total food market. According to industry experts and analysis, the total food production in India is likely to double in the next 10 years, with the country’s domestic food market estimated to reach USD 258 billion by 2015.
The Indian market has been witnessing the entry of many brands offering a host of products across various processed food categories such as frozen foods, beverages, spices, seasonings, and curries. One segment, which has evolved significantly in the processed food section is frozen convenience food. The increase in demand for frozen food products is driving increased focus on the category by modern retail chains and standalone grocery stores, who are stocking more varieties of frozen products such as peas, corn, and ready to cook and heat-and-eat packaged products. As sales increase, the category is slated to witness increased penetration and entry of more players and products.
Affirms Kirit Maganlal, CEO of Goa-based food and grocery store chain, Magsons. “In the last five years, the frozen food section has shown growth of 25 percent year-on-year in our stores. Consumers are looking for convenience, hygiene and quality products, and are willing to spend on them.“
“Today, every modern grocer is increasing space in his refrigerated display units for frozen foods,” says Ashik Hamid, Senior Vice President (Food) at HyperCity Retail. “We had foreseen the potential of this category years ago and had invested in space and equipment even before the category began to grow. Initially, we kept only 3-4 brands; today, we have as many as 30! In fact, we have the largest space per store for the frozen category, which contributes about two percent to our sales,” he adds.
As per Euromonitor’s report, sales of frozen processed foods that stood at Rs 2,986.3 million in 2011, rose to Rs 3,653 million in 2012, and was anticipated to reach Rs 4521.5 million in 2013, but grew by 24 percent, which was substantially higher than the CAGR of 19 percent over the review period.
Market trends
The frozen food segment comprises of ready-to-cook/ fry and heat-and-eat vegetarian and non-vegetarian food products. The market is largely dominated by select national brands and some regional players. The market overview depicts that in 2013 non-oven frozen potatoes registered the fastest growth in the segment with record retail value growth of 25 percent, mainly due to the strong performance of McCain Foods that has a retail value share of 70 percent in the category.
Market analysts generally segregate the category into processed frozen vegetables, poultry, fish and seafood, and red meat. The market share of the players is also analysed based on their product range in the aforesaid sub-segments. Based on this, Safal by Mother Dairy Fruit & Vegetable was the leading brand in frozen vegetables with a retail value share of 51 percent in 2013. In this sub-segment, garden peas continued to be the most popular frozen processed vegetable bought across India with a commanding retail value share of over 69 percent, followed by mixed green vegetables and baby corn with shares of 14 percent and 7 percent, respectively, in 2013.
In the frozen processed red meat, Al Kabeer and Darshan Foods held a combined retail value share of over 80 percent in 2013. Sausages, with a value share of 39 percent, was the most popular type of frozen processed red meat, with mutton seekh kabab and hamburgers with value shares of 20 percent and 15 percent, respectively, were the second and third most popular types of frozen processed red meat during 2013.
Venky’s, Al Kabeer, Meatzza, Sumeru and Yummiez with an anticipated combined retail value share of 93 percent were the leading brands in frozen processed poultry in 2013. Here, chicken seekh kababs, nuggets and sausages were the most widely available and popular with value shares of 16 percent each in 2013.
Says Maganlal, “McCain Foods is the leading international brand and has significant demand in our stores with their range of ready-to-fry products. Al Kabeer’s frozen chapatis and parathas are other hot sellers. But Venky’s leads in our stores with sales generation of around Rs 5 lakh per month. One of the major reasons for the brand’s success is the extensive in-store promotions undertaken by Venky’s at all our stores. Costa’s and SNX are two popular local brands in our stores.”
Venky’s is also the fastest selling brand at HyperCity. Says Hamid, “The brand contributes 16 percent to our sales revenue in the frozen food section. Venky’s chicken nuggets in 500 gm pack is the fastest selling, followed by Mother Dairy’s green peas in 500 gm packs, and amongst international brands, it is McCain’s 450 gm packs of french fries.”
Creating awareness
Though the category has been around for some time, its penetration is still relatively low (like many new age food concepts). Brands and marketers have been creating awareness through in-store promotions and advertisements. “Wet sampling is very popular and drives footfalls; it can push category sales by as much as 50 percent. Since the fallout effect of a promotion lasts a week, they should be held regularly,” opines Maganlal, whose store Magsons is popular with brands for launching or promoting their products.
“Cross category promotions and offers are the most popular promotional exercise in the segment, which runs across all our stores. For instance, a packet of tomato sauce is offered free with a pack of French fries or nuggets. We have observed that such promotional campaigns generate incremental sales of over100 percent for a specific brand or product,” adds Hamid.
Challenges
In India, the food and grocery segment is dominated by independent grocers with small neighbourhood stores that are characterised by low investment. So stores with refrigeration facilities are very less in number. This is a major roadblock for increasing penetration of frozen food through general trade, which comprises over 90 percent of overall food and grocery retail. Refrigeration facilities are present in modern retail stores, besides which, these stores attract the segment of consumers looking for convenience food such as ready to cook/eat. Hence, modern trade is the only and preferred channel of sales for frozen food category.
The country also grapples with insufficient infrastructure facilities like cold storage and temperature controlled (cold) transport.
The frozen food category is non-existent in rural area where close to 65 percent of the population resides. Consumers here may not be driven by convenience like in the metros, but they may aspire for such foods, and be willing to experiment with the new foods in the category such as french fries, etc.
Prospects
The frozen processed food category is expected to grow by a CAGR of 11 percent in constant value terms over the next 3-4 years. Growth in modern retail chains, increased refrigeration of small retailers and rural households, growing awareness of frozen food products, and the progression of fast food chains, are expected to drive sales of frozen food.
“This segment, in my opinion, should beat the industry norm and hover around 25 -30 percent growth. Spurt in national brands will drive this growth. International brands are facing huge import constraints due to the new FSSAI regulations, and under-valuation of the rupee is prohibiting imports in a big way,” states Maganlal.
Agreeing with Maganlal on the growth potential of the category, Hamid at HyperCity says, “Earlier, keeping frozen foods was an option for the modern grocer, but now they have become an essential section in the grocery store. At HyperCity, the category has been growing at 30 percent year-on-year, and going by the trend, we envisage that it will continue to grow. Going ahead, we see a lot of new variants coming into the market and private labels being introduced in the category.”
Advancement in packaging technology for increasing shelf life, hygiene, and attractiveness has contributed immensely to the category’s growth. The substrate or material used for packaging is developed to withstand freezer temperature, while maintaining the integrity of the contents. The packaging is designed keeping in mind the way SKUs are placed in the freezer, and also ensure that the brand communication to the shopper is clear and enticing. Typically, frozen food is displayed either in coffin-style freezers, or stand-up fridge-like freezers.
To sum up, the processed food industry and ongoing developments hold a lot of promises for organised players in the food space to invest and grow their business. In fact, this segment has been on the growth radar of the government. To incentivise expansion of the processing capacity, Finance Minister Arun Jaitley while presenting the Budget 2014 in the Lok Sabha, announced reduction in excise duty on specified food processing and packaging machinery from 10 percent to 6 percent. This move by the government is expected to aid in the growth of the frozen food segment.
Six companies share their business insights, revenue growth from retail and HoReCa, growth prospects and plans to grow the category, in the following pages:
Darshan Foods, Delhi
Incepted in 1996, the company offers ready-to-eat and ready-to-cook non vegetarian products such as chicken sausages, chicken hot dog jumbo, chicken salami, chicken mortadella, mutton meatball, mutton seekh kabab, mutton shammi kabab, bacon, and tenderloin. Our best sellers are hot dogs, seekh kebab, sausages, mortadella, salami and bacon, and they constitute 40 percent of our sales. Godrej Tyson and Venky’s are the two major competing players in the segment.
Our revenue from the eastern market is 10 percent, from the western market it is 25 percent, from the north it is 40 percent, and from the south 25 percent. The HoReCa sector generates 25 to 30 percent of the revenue.
Modern retail formats have been great contributors to the segment by setting benchmarks in retail operations, display and storage of frozen food products.The infrastructure here facilitates storage and provides an environment for brand promotions. This is encouraging increase of frozen processed food at the retail end. Today, even traditional retail stores are trying to emulate the strengths of modern retail stores. For our brand, modern and traditional retailers contribute an equal 50 percent each.
Our best performing retailers are Metro Cash and Carry, Best Price Modern Wholesale (Walmart), Easyday, Big Bazaar, Spencer’s, Modern Bazaar, Le Marche, HyperCity, Tesco, etc. There are a lot of regional retailers who are contributing significantly to our growth story in their home markets.
: Stating nutritional facts and licence number are two mandatory labelling norms, which have changed as per the new labelling regulations.
: Cost of logistics, retail and distribution margins, and disparity in VAT and Octroi rates are major concerns that are driving costs of operations higher. The country’s infrastructure is improving, however, the Inspector Raj on highways continues to hamper free flow of material, thereby creating delays. Sales tax checkpoints also cause delay as no priority is given to reefer/perishable cargoes. These delays can (at times) be for 5 to 8 hours.
Our 70,000 sqft plant at Bawal in Haryana, currently produces 15 tons per day. We will be expanding production capacity to over 30 tons per day. We are working on the investment required and the equipment is being short listed.
Bhanu Farms, Kolkata
The company, incepted in 2012 offers a range of frozen fruits and vegetables that have a shelf life of 18 to 24 months. Of these, frozen peas alone contribute 30 percent of the total sales. The eastern market contributes 50 percent revenue, the western 30 percent, and the northern 20 percent. We will be launching in the southern market by October 2014. Our HoReCa clientele generate 60 percent of our revenue. McCain, Safal, Sumeru, and Yummiez are some major players in the segment with a national footprint. There are also a lot of local and unorganised players, especially in frozen peas and corn.
Modern retailers provide the biggest support to the category by providing the necessary infrastructure for stocking frozen foods. Currently, Modern Trade generates 7 percent revenue. Reliance, Star Bazaar, Metro Cash and Carry, Best Price Modern Wholesale (Walmart) are our best performing modern retailers.
: Frozen food manufacturers must adhere to packaging and labelling norms, conform to the Weights & Measures Act, follow microbiological standards, food safety management systems, fire safety and pest control requirements at the factory.
Logistics and supply chain management is still a big concern as the warehousing and controlled distribution vehicles are few and not easily available. Secondary distribution is also a big worry as we do not get smaller vehicles for lower weight distribution. Packaging is very crucial role for protecting the frozen food from the time it leaves the processing unit to its transportation and distribution to the retailer, and finally to the consumer’s refrigerator
We are working towards expanding the frozen vegetables category space. With fresh vegetable prices soaring high, this is the right time to expand the range.
Amrit Foods, Kolkata
Amrit Foods stepped into frozen food segment with its brand Fresco Pollo in 2011. The brand offers ready-to-serve and heat-and-eat value-added chicken products such as chicken salamis, sausages, nuggets, and crumbed chicken items. These contribute 60 percent of our total sales. The overall processed value-added chicken sub-category has been growing at 25 to 30 percent year-on-year in the urban markets, and our brand has been growing at 30 to 35 percent year-on-year.
Fresco Pollo has a pan India presence, especially in the top 10 Tier 1 cities, where we are witnessing high demand. The South is the strongest market for us. The major volume of sales – almost 70 percent – is generated in the B2B segment (institutions). The remaining 30 percent comes from retail sales. Some of our B2B clients include the Indian Army, ITC, Sodexo, Big Cinemas, and Swissotel Hotels and Resorts.
The market potential is huge in the frozen food segment and only a handful players are operating across India. Venky’s and Yummiez as significant players in this category.
Overall we have registered 60 percent sales from general stores and 36 percent from modern retail. But modern retail has been the catalyst of growth for processed foods as it offers convenience for new age consumers, and has cold storage counters, display areas, and promotional activities, which help brands to reach out to consumers directly. Our best performing retailers include Spencer’s, Auchan, Metro Cash and Carry, Carrefour and Nilgiris.
The labelling and packaging and FSSAI laws in India are still at a very basic stage as compared to developed countries such as Japan and European countries. However, in the last few years, our food laws have become better and more stringent as they have made it mandatory for manufacturers to disclose the ingredients and food value details on the packaging.
Government policies governing frozen food category should be worked out with a focus on building adequate infrastructure of cold storage and supply chain. Lack of awareness is another hurdle, specially in smaller towns and cities, which is restraining growth of this category. There is a negative mindset amongst people about frozen food products’ food value, freshness, storage, and shelf life. This misconception amongst consumers needs to be addressed. Another major concern is the presence of open slaughter houses in market places. Unorgansed slaughtering poses health concerns due to bacterial contamination, and it also spoils the taste and texture of the meat. It is banned in developed countries, and I think we should ban it too in our country.
The company is planning to roll out a new range of veg assortments in ready-to-serve. We have also introduced convenient, small format retail stores under the brand name Easy Pick in prime residential areas such as Kasba and Salt Lake in Kolkata. In the coming two years, we will roll out 400 small 300-500 sqft Easy Pick stores across India. The brand has plans to venture into QSR and E-commerce as well.
We have invested heavily in our production units in the last few years. We have increased the capacity of our Panagarh plant and launched another state-of-the-art plant in Durgapur, which will be fully commissioned shortly.
Unitas Foods, Delhi
The company, which was incepted in 2008, specialises in frozen dimsums and spring rolls. Our dimsums, specially chicken kothe and vep supreme, are the most popular, and contribute almost 50 percent to our overall sales. Our HoReCa clients generate 70 percent of our revenue. We have no major competitors at the national level, but there are local players in each city who are supplying handmade dimsums. We are offering machine-made dimsums, which are produced at our imported automatic dimsum manufacturing plant.
We supply in Delhi/NCR through our distributor, and to Best Price Modern Wholsesale (Walmart) and Metro Cash & Carry in Punjab. We are supplying directly to cities such as Ludhiana, Zirakpur, Jalandhar, Amritsar, Bhatinda, Patiala Jaipur, Bhiwadi, Pilani, Kota, Agra, Lucknow, Gorakhpur, Bareilly, Mumbai, Thane, Pune, Shimla, Ahmedabad, Surat, Vododara, Hyderabad, Vijaywada, Bhopal, Bangalore, Hubli, and Patna.
We don’t supply to traditional retail stores because their freezer capacities are very low and the attitude of the small retailer is also not progressive. Modern Trade provides the right platform for frozen food manufacturers to display their products, create awareness with customers, and reach out to the HoReCa customers through their mailers and catalogues.
In terms of labelling, list of ingredients, nutrition chart, date of manufacture, expiry date, weight of the product, MRP, etc, need to be clearly mentioned. FSSAI laws pertain to food safety and security, so all HACCP compliances should to be adhered to by processed food manufacturers.
Logistics is the major hindrance to small players like us, as they cannot afford to own freezer vans and have to hire third-party logistics and transportation facilities, the cost of which adds to the product cost. Also, since we don’t have full truck loads, availability of freezer vans is always an issue.
To appoint distributors in every major state by 2016 and to commission another plant in South India. We also plan to add other popular Chinese snacks to our portfolio.
Godrej Tyson Foods, Mumbai
Godrej Tyson Foods is a joint venture between Godrej Agrovet, a part of the Godrej Group and Tyson Foods Inc. The company has processing plants in Bangalore and Mumbai. Products come under two brands: Yummiez (frozen and further processed) and Real Good Chicken (fresh chilled). Under Yummiez, the company offers 15 products, with nuggets and kebabs being the most popular, followed by Punjabi chicken tikka. These products contribute around 35 percent of the frozen food sales.
The company currently records 30 percent revenue from the west, 30 percent from the north, 26 percent from the south, and 14 percent from the east. The retail sector contributes 27 percent revenue, the QSR segment 33 percent, and 40 percent comes from HoReCa.
Packaged processed foods have witnessed rapid growth with the evolution and growth in modern retail, which today, is a more favoured shopping destination as consumers find greater variety, quality, and convenient pack sizes here. Modern stores also provide space for better brand visibility and communication. Some of our best performing retail partners include Tesco, Spencer’s, HyperCity, Food Bazaar, Easyday and DMart.
Every packaged food has to be labelled in accordance to the Food Safety and Standards (Packaging and Labelling) Regulations, 2011, under the Food Safety and Standards Act, 2006 notified by Food Safety and Standards Authority of India (FSSAI). Labelling is a means of introducing a product for sale by providing comprehensive information about the product to the target consumer market, besides ensuring safety standards of the regulatory body. Standards of Weights and Measures Act, 1976 is another important implementation, which provides better protection to consumers by ensuring accuracy in weights and measures.
In India, the food processing industry has its inherent challenges, of which, food safety from farm to fork is at the top. It is even more challenging for a frozen product as the cold chain infrastructure across the extended supply chain in our country still needs to be fully developed. An inefficient supply chain management increases the cost of production, thereby leading to higher product prices. Food processing is an investment-intensive business, and while consumption levels are likely to increase, the matching infrastructure to handle it is not yet ready. In addition, the cold chain infrastructure has still not been able to attract significant private entrepreneurial interest in taking up the challenge to provide a seamless service from farm gate to retail point.
The government needs to push up investments in technology in the farm sector, food processing, and the modernisation of cold chain logistics. The VAT for frozen foods, which are expensive to transport, is levied at 10-15 percent in some states, then there is 5 percent hygiene tax levied on packaged food products, including poultry, thereby deterring the growth prospects of the food processing industry.
We have recently launched Chicken Kheema at Rs 68 for a 300 gm pack to enable (non-vegetarians) households to include chicken in their meals. Godrej Tyson Foods aims to contribute to the national nutritional security program through protein sufficiency.
Mother Dairy Fruit & Vegetable, Delhi/NCR
Incepted in the early 1990s, Safal has been the pioneer in frozen foods category. Our product range includes frozen peas, corn, mix vegetables, cauliflower, carrot, beans and aloo tikki. Frozen peas are the best selling with a shelf life of one year, and the category generates about 75 percent sales revenue in our overall frozen food portfolio. Laminated film poly with pet pouch is the most popular packaging material used in India. This type of packing material has got better barrier properties to maintain product quality in tropical countries.
The eastern market contributes13 percent, western 15 percent, northern 50, and the southern 22 percent. The HoReCa sector constitutes less than 10 percent of our business. Here, our 5 kg packs are popular. The consumer pack segment is more quality driven and players such as Pagro, Welga and Allana are our major competitors. In frozen snacks, McCain is a competitor.
Modern Trade contributes about 40 percent of revenue for our brand, and our Safal stores generate around 15 percent revenue. Modern Trade attracts the new age customers who are mostly the consumers of frozen food.Modern grocers are playing a significant role in terms of new product introduction through instant and focused reach to these customers.
The MRTP Act , nutrition declaration on the labelling, Weights & Measures Act, PCO, and other statutory measures need to be implemented, besides FSSAI. For exports, the product has to comply with the law of the land of the exporting country.
Our SCM in this category is in line with our ice cream supply chain, which consists of C&F, distributors, retailers and MRFs. We ensure refrigerated container movement both for primary and secondary markets. We ensure that no temperature abuse takes place by installing data loggers in reefer vans.
Absence of a cold chain infrastructure (freezers) at the retail end makes it challenging for market penetration in non-metro cities, which do have a significant number of customers who are willing to try out frozen products. Mental block among the masses that ‘Frozen is not fresh’ is another challenge that needs to be overcome, but it will happen only over a period of time.
: We plan to strengthen our ‘Go-to-Market’ strategy by entering newer cities. Market penetration in the eastern and western regions is also going to be our strategy for growth. We specifically want to expand our presence in cities like Patna, Raipur and Guwahati. We are planning to outsource sales and distribution through C&F agents and superstockists in the north eastern market. Besides, we also plan to roll out products such as spinach block, and aloo methi, which will be a first in the Indian market.
