Packaged Food Giants' Slow Growth In Cities Raises A 'Healthy' Question

The urban appetite for biscuits and noodles is likely being challenged by a health-conscious revolution as city dwellers swap indulgence for nutrition.

The smart snacking market has grown 1.2 times faster than traditional snacks, according to market researcher NielsenIQ.

The data is in stark contrast to the recent commentaries of packaged food companies like Britannia Industries, Nestle, and Dabur—all of whom citied factors such as higher rental and income squeeze coupled with persistently high food inflation as reasons for sluggish consumption growth in metro cities.

In fact, consumption in the country's hinterlands has outpaced urban areas for at least the last nine months.

Metros, which drive nearly a third of FMCG sales, accounted for 2.4 times the slowdown, Britannia Industries Executive Vice Chairman and Managing Director Varun Berry said during a post-results call.

Nestle India, ITC, Dabur, Tata Consumer Products, and Hindustan Unilever, too concurred. Nestle said the middle class was shrinking, while others are concerned over the erosion of their urban consumer base.

Meanwhile, the consumption rate of 'smart snacks' has grown twice over general snacks as urban consumers increasingly opt for snacks that align with their health goals, according to Sonika Gupta, executive director, customer success, NIQ India.

Consumers in metro cities contribute the most to smart snacking, and they are prioritising snacks that promote heart and bone health, immunity, as well as a strong gut, she said. Snacks containing multigrains, nuts, dried fruits, and antioxidants, as well as those rich in vitamins, minerals, and fibre, are in high demand, Gupta added.

One out of five snacks now has a healthy connotation, she said. Categories such as oats and Greek yoghurt are fuelling growth in the 'smart snacking' segment.

"Smaller, emerging players are challenging established players with competitive offerings, with single-serve packs driving demand and growing 60% faster in smart snacking than traditional small packs due to mainstream pricing strategies," Gupta said.

According to a recent NielsenIQ survey, 63% of consumers seek innovative and healthy snacking options, while 50% read ingredient labels to understand the nutritional value. "This presents opportunities for brands to innovate in health-focussed products and leverage the trend," Gupta said.

The shift to healthier food was echoed by Tata Consumer's Managing Director, Sunil D'Souza, while discussing its newly acquired brand, Organic India. "I wasn't bullish on the organic food range. But now with the increasing demand for organic jaggery, organic ghee, and organic rock salt, we're chasing our tails trying to make sure the supply chains are in place."

The contrasting data set gives credence to the underlying shift in consumer preference towards healthier options, raising doubt on remarks of FMCG CEOs that their slow growth is merely because of macroeconomic woes.

Urban consumers seem to be consciously steering clear of palm oil, hydrogenated fats, and excessive sugar and salt—ingredients that have historically been marketed to them as tasty and healthy.

Notably, while there is a demand slowdown for categories like biscuits, noodles, chocolates, and ice cream in cities, the demand for kitchen essentials including edible oil, besan, basmati rice, atta, and maida remains strong.

"We haven't seen a softening of urban demand," said Adani Wilmar CEO and Managing Director Angshu Mallick. "We're expecting a strong Q3 led by a broader wedding season in November and December." 

But not all companies are optimistic about immediate consumption growth.

The current urban demand scenario remains weaker than in previous years, prompting Britannia—India's largest biscuit manufacturer by value—to anticipate some impact on volumes in the short term.

Even the crucial festive season, when consumers usually indulge despite pressure on wallets, fell short of delivering the expected consumption growth, according to a senior executive of a packaged food company.

In contrast, the 'smart snacking' segment is thriving, with companies noting sustained strong demand in this category. The trend has prompted several companies to expand their portfolio into healthy snacks.

Britannia, for instance, launched a protein bar ‘Be You' on a test market basis on e-commerce channels. It is in the process of strengthening its distribution network before committing to large-scale deals. In July, ITC also launched a health and nutrition brand, Right Shift, aimed at consumers aged 40.

Gupta noted that the brands that cater to the health-centric shift while preserving flavour and convenience are positioned for substantial growth.