Why India’s Packaged Food Market Will Jump To $200 Billion In A Decade

More working women and smaller families will drive consumption of packaged food in India. Particularly when hiring a household help is becoming costlier.

Credit Suisse calls these structural drivers for the long term. The immediate push is coming from improving cold storage due to better power supply, affordability and investments. As a result, the Zurich-based investment bank said, the market is expected to grow fivefold to $200 billion over the next decade.

The most profitable opportunities lie in baby food, chocolates, biscuits, baked products and juices, according to Credit Suisse. It also highlighted the increased focus on healthier snacks, and beverages — largely driven by consumption amid rising temperatures.

Taking a cue, fast-moving consumer goods companies like ITC Ltd., Nestlé India Ltd. and Britannia Industries Ltd. are increasingly catering to the changing consumer habits, introducing eco-friendly, healthy products at cheaper rates.

Britannia, the maker of Good Day biscuits, launched new products and expanded reach in the past five to 10 years. Nestlé India, after a change in management following the Maggi safety issue, too unveiled new products. ITC also has a sizeable foods business, having invested strongly in growing branded packaged wheat flour, cream biscuits and salted snacks.

While the scope for growth is high, lower shelf life, need for controlled ambient temperature in the supply chain, greater price sensitivity and taste are some of the challenges for the packaged food industry. Credit Suisse identified three key catalysts that could translate into sustained growth.

Availability: Better power supply has improved refrigeration at retail stores. Also, modern retail outlets can now be found in smaller cities and towns.

Affordability: Lower goods and services tax rates, lesser wastage in the packaging cycle and larger manufacturing efficiencies keep costs under check. Prices have increased at a lower rate than inflation.

Greater Investments: Incumbents are putting in efforts to grow their categories.

Credit Suisse sees a strong potential for both Nestlé India and Britannia. Nestlé has a better category mix and a diversified product portfolio, while Britannia is the market leader in biscuits, the investment bank said. Britannia can grow further by expanding its market share and diversifying its product range.

It also identified smaller players like Prataap Snacks Ltd. and Manpasand Beverages Ltd. as high-growth companies with a relatively low margin. For ITC, packaged food is still a small contributor to its earnings.

While Patanjali is another large player in packaged foods, Credit Suisse said it has seen a limited traction in biscuits, chocolates and juices. The company, it said, will derive growth from consumer transition to branded products.

Credit Suisse's Top Picks

Nestlé: Maintained ‘Outperform' with a price target of Rs 10,500 — an upside potential of 12 percent.

Britannia: Maintained ‘Outperform' with a target of Rs 5,850, implying an upside of 6 percent.

GSK Consumer: Maintained ‘Outperform' with a price target of Rs 7,100 — an upside of 16 percent.