Despite consumption slowdown, packaged food sector grows 14.4%: IIP data

Branded packaged food market expanded 17.6% in calendar year 2018 to cross the Rs 5-trillion-mark for the first time

Consumption slowdown appears to have not impacted the packaged food market like it has other segments of the fast-moving consumer goods (FMCG) sector. The latest data from the Index of Industrial Production (IIP), which maps the country’s manufacturing activity, shows growth of 14.4 per cent between April and August this year in the manufacture of food products versus the same period last year.  

The data is of relevance because IIP is considered an indirect indicator of consumer demand. As Kaustubh Pawaskar, senior analyst at Mumbai-based brokerage Sharekhan, says, “Companies will not look at hiking production activity if there is no demand in the marketplace. A double-digit growth in manufacturing activity of food products in the first five months (of the 2019-20 financial year) points to precisely this trend. This is interesting, since it comes at a time when the overall market remains sombre.”

RS Sodhi, managing director at the Gujarat Co-operative Milk Marketing Federation (GCMMF), the maker of the Amul brand of dairy products, says: “Consumers will not cut down on food consumption the way they would do other items during a slowdown. Our first-half growth (for the current financial year) is in the region of 26 per cent. Around 4-5 per cent of this is price-led growth because of price hikes we took during the period. But the balance (21-22 per cent) is volume growth.”

Retail sales numbers, sourced from the industry, shows that the packaged food market grew by close to 11 per cent (in terms of volume growth) between April and August this year. While lower than the 14-15 per cent volume growth that was seen in the same period last year, it is still higher than the 4-6 per cent volume growth posted by the overall FMCG market during Q2.

Though the preference for value packs as opposed to premium packs, says analysts, has grown in the past few months, some industry executives point to the implementation of the goods and services tax, which has pushed out unorganised players from the market, aiding branded food growth. 

Subodh Jindal, president of the All India Food Processors’ Association, which consists of mainly Indian food manufacturers, says: “The market is increasingly getting organised and what was earlier considered premium is no longer the case. Packaged or processed food is a necessity, and the growth in IIP, which tracks manufacturing activity, in my view is a reflection of this broader trend.” 

Ajay Gupta, managing director of Capital Foods, which makes the Ching’s brand of noodles, says: “Aspiration levels continue to grow despite an overall weak market. Packaged food is priced affordably. So even when the overall market remains depressed, the trade-off is not steep for consumers when it comes to buying food products. That could explain why growth rates are healthy from production point of view.”

Market research agency Euromonitor says the branded packaged food market expanded 17.6 per cent in calendar year 2018 to cross the Rs 5-trillion-mark for the first time as almost all categories posted healthy double-digit growth. It estimates that this rate of growth will continue this year, too, with the market likely to touch close to Rs 6 trillion at the end of 2019.

Euromonitor says the branded food market includes categories such as edible oil, dairy, pasta and noodles, savoury snacks and biscuits, which stood at Rs 5.1 trillion in 2018, up from Rs 4.3 trillion in 2017. It grew, said the research agency, because of the migration of consumers from non-branded packaged food products to branded ones. 

Experts say packaged food companies are focusing on solving distribution challenges, conducting promotional activities, and, most importantly, giving more attention to health and wellness products.