Introduction – Food Industry:

Food and beverage sector consist of two industries in itself: food processing
industry and non-alcoholic beverage industry. It is considered as a sunrise
sector gaining a lot of prominence in recent years. Major segments in food
industry are dairy products, bakery products, confectionary products and
meat & poultry products. According to IBEF, India’s food processing
industry accounts for nearly 32% of country’s total food market. It is among
the biggest industry in India and ranks fifth in terms of production,
consumption, export and expected growth. Currently it is growing at 10%
per annum and is expected to reach US $194 billion by 2015 from US $121
billion in 2012, according to Indian Council of Agricultural Research
(ICAR). The packaged food sector would reach US $30 billion in 2015 from
US $15 billion in 2013 owing to rise in household income and changing
consumer eating patterns. Urban India is the largest consumer of the
packaged food industry as of now contributing nearly 75% to it. The share
of food processing sector in total country’s exports is as high as 12%.
According to data released from Agricultural and Processed Food Products
Export Development Authority (APEDA), the country’s agricultural and
processed food exports stood at US $12,797.65 million in the year 2013.
According to Department of Industrial Policy and Promotion (DIPP), India
attracted a foreign direct investment (FDI) of US $3,776.57 million during
2000-2013.

Food Processing:
Food processing industry is directly linked to the agricultural industry. If
the agriculture production increases, the food processing industry will also
flourish. It is regarded as a ‘sunrise industry’. FSSAI looks after the
regulations and standards governing the industry. The industry is poised to
be worth around US$ 67 billion. India’s food processing industry is mainly
export oriented. The country’s geographical advantage of connectivity to
different regions helps it in the export.

Top companies in food processing:

Company Net Income (in Rs Cr)

Nestle 1117.13
GlaxoSmith Con 674.75
Britannia 369.83
KRBL 265.31
Kwality 126.63
Non-alcoholic beverage segment:
Currently the non-alcoholic market in India stands at US$ 1.2 billion. This
market is expected to grow at 20% on year on year basis. Non-alcoholic
drinks include carbonated drinks, sparkling beverages, still beverages, fruit
juices, energy drinks, sodas, tea and coffee. Leading players in the market
are Coca-Cola, PepsiCo, Parle Agro, Dabur and Godrej.

Non-alcoholic market demands are increasing with the rising disposable

incomes of people. Also, rising global temperatures has increased the
demand for these markets. However, increasing health awareness,
especially regarding obesity, among the consumers is anticipated to act as a
key restraining factor for the market. Nonetheless, this issue has been
solved by the introduction of diet and zero-sugar drinks by leading
companies. Changing trends in the consumer segments has also made it
more difficult for manufacturers to gauge the needs of the consumers and
hence come up with innovative products.

Multinationals like Nestle, General Mills, DANONE, Unilever and PepsiCo

are largely entering into the health foods and beverages market. This
market is somewhat niche in India as of now and hence is considered as the
growing industry.

Porter’s Five Forces:

Threat of Substitutes:
Food and beverages forms the core of living.The threat of substitute for this
industry is very low. The trends of eating and drinking might change with
time but overall you cannot replace the industry by a substitute.
Bargaining Power of Buyer:

With a large number of products in the market and daily innovations there
is no dearth of suppliers. Hence customers are at a luxury of choosing from
a host of products. Government has also allowed 100% FDI in this industry.
Hence overall buyers have a high bargaining power.

Bargaining Power of Suppliers:

Food and beverage industry is hugely dependent on the agricultural
products for its raw materials. Agricultural produce for the needs of the
country is just sufficient. Milk production in the country though highest, is
least exported as the demand is very high in the country. Moreover, the
companies have fewer options as imported products increase the price of
the end product. But the suppliers are sometimes exploited on price by
middlemen or companies. Hence suppliers have a moderate bargaining
power.

Threat of New Entrants:

Government provides a lot of subsidies for food processing and hence

establishing shop is quiet easy. Economies of scale are also very low. But
the barriers from the government side are quite high. Hence the threat of
new entrant is very high.

Competitor Rivalry:

There is a high concentration amongst the industry. There are a lot of

players in the industry for every product category. Though in every category
there is a power struggle between 2-3 large players, there is very little scope
for price appreciation. Hence there is a high rivalry amongst existing
competitors.