Growing India's ready to eat market
RTEs have been accurately positioned to address the growing need for convenient and time-saving eating alternatives.
- Article |
- 01 May, 2018
- Significant opportunities are emerging in the relatively unsaturated ready-to-eat meal market as demand grows
- Growth is being driven by the busier lifestyles of urban Indian households
- By broadening their product range, communicating product benefits more effectively and strengthening ties with retailers, manufacturers can accelerate growth
Following the trend initiated by breakfast cereals, ready-to-eat meals are on their way to becoming a hit in the Indian food industry. In 2011, these pre-prepared and packed dishes generated annual retail sales of Rs. 140 crores, doubling their value compared to that in 2007. This success can be explained from the perspectives of both demand and supply.
Ready-to-eat meals have been received with great enthusiasm by an emerging class of consumers, lacking the will, skill or time to cook at home. This segment, born from changing socio-demographics in India (see Exhibit 1), is mostly composed of active urbanites, striving to balance their professional, personal and family lives. The changes driving this new consumer behaviour are not marginal. They hit a vast majority of Indian urbanites. Today, 86% of urban households have a preference for convenience, pre-cooked and fast food, as a result of a busier lifestyle.
Ready-to-eat meals have been accurately positioned to address the growing needs for convenient and time-saving eating alternatives (see Exhibit 2 for comparison). In this market space, the category competes with equally fast-growing substitutes, such as eating out or ordering from restaurants. To hold a competitive edge, food majors have been careful to market their products with an attractive price tag. A typical vegetarian ready-to-eat dish for one person is sold within an average range of Rs. 25 - 50. This low price allows ready-to-eat meals to be positioned as an economical alternative to the relatively more expensive restaurant or fast food meals.
In addition to their pricing, players have been focused on quality to attract demanding Indian consumers. Some companies rely on brand association to guarantee taste and refinement. The famous Moti Mahal, who pioneered Tandoori cooking in the 1930’s, is the best illustration. Other firms place the focus on R&D to process food in a manner that best preserves taste and ensures the highest standards of safety. Kohinoor, for example, has partnered with renowned foreign companies to equip its manufacturing units with the latest technologies. Moreover, to gain a competitive edge in India, most players have also benefited from having a presence in foreign markets like the US and the UK, where quality standards are highest.
After almost a decade on Indian store shelves, the market conditions are now ideal for ready-to-eat meals to achieve mass appeal. In the early 2000’s, several firms like MTR, ITC and Tasty Bite initiated the development of the category. As the market grew, new entrants like Heinz began to appear in the market. The increasing competition has been very beneficial to the development of this new category. Through promotions and advertising, players have collectively educated consumers about a previously unfamiliar eating behaviour. Today, with a number of major brands in the market, the story seems to be only beginning. The very recent entry of Agro Tech foods is a good indicator that other food companies are getting ready to develop their offer in the ready-to-eat meal market space. As supply increases, the penetration of ready-to-eat meals in the convenience-eating market is certain to gather momentum.
The potential to grow the segment is tremendous. Relative to more mature markets where the category is already well established, the Indian market is far from saturated. In the UK for example, consumers spend close to 17% of their convenience food expenditures on ready-to-eat meals. Eating at, or ordering from restaurants constitutes the remaining 83%. In contrast, Indian consumers dedicate only 0.27% of their expenditure to the category, giving preference to restaurants.
Indian players have successfully made their first step into the ready-to-eat meal market space. However, growth could be accelerated by adopting three strategies:
Broaden product range
In comparison to international players, Indian firms venturing into the ready to eat food market are still proposing a limited and quite basic range of products for their consumers. In France for example, market leader Fleury Michon sells over 100 varieties of meals under more than 15 branded categories. Indian leader ITC offers a fair, but less comprehensive range, with 15 dishes under the Kitchens of India brand, and 10 dishes for Aashirvaad Ready Meals.
With an extended portfolio, Indian players would fuel growth by enlarging the consumer base and by promoting repeat purchase amongst buyers. Today, certain categories of customers are not buying simply because they don’t find the offer to please their palate. Taste is certainly a personal matter, but regional variations also play a determinant role in a market like India. Currently, most players concentrate their offer on North Indian dishes. (see Exhibit 3) To compete against restaurants, ready to eat food manufacturers need to complement their product mix with additional south Indian and regional offerings.
Products with health benefits also have the potential to widen the consumer base tremendously. Low calorie products with displayed nutritional values can be marketed to become excellent allies for the rising health conscious generation. Many Indian consumers do not want to become victims of a developing obesity epidemic. An estimated 50% or urbanites already consider cholesterol and fat levels when purchasing food. In their pursuit of healthy nutrition, they are likely to reduce their visits to restaurants, and especially to fast food outlets. This currently appears a threat for the entire convenience food market, but if ready to eat meals were positioned adequately, this trend could become a great opportunity.
In parallel to widening the consumer base, a broader product mix is likely to increase the consumers’ loyalty to ready to eat meals. Looking again at the example of French leader Fleury Michon, a customer eating their ready to eat meals twice a week could spend a whole year without ever having an identical dish. In comparison, ITC would currently run out of diversity after 3 months. In a market where substitutes offer tremendous variety, food majors could again strengthen their position with a wider product portfolio.
Communicate to reduce barriers to adoption
Refocusing communication on freshness and hygiene would also be beneficial to the development of the category. Indian consumers are extremely concerned about these attributes, and for this reason they remain attached to shopping frequently for food and to cooking at home.
Although players have built the capacity to package fresh and hygienic dishes, they are not communicating this advantage effectively. The typical messages displayed on packaging include “natural” and “no preservatives”. In addition, players should also make clear that their products are safe and made of fresh ingredients to increase consumer trust toward this new category. At this stage of the product’s life cycle, it is critical to educate more consumers and overcome their tendency to associate packaged food and long shelf life with questionable quality and a lack of freshness.
Strengthen ties with retailers
Finally, the category could also experience accelerate growth if ready-to-eat meal manufacturers strengthened their ties with retailers. Leaders such as Big Bazaar are already collaborating with their suppliers, but many believe there is potential for 30%-50% annual growth rates in sales if they received additional support. Today, suppliers are mostly providing training to the retailers’ sales force and advice on shelf arrangement. In complement to this, retailers believe they could boost sales with store-specific discounts and promotional offers, as well as additional communication material to display on the shelves. If such help was provided, those retailers surveyed declared they would display the category prominently to attract shoppers’ attention.
At a retailer’s scale, bearing such marketing costs for a relatively small category is not viable. In contrast, ready-to-eat meal manufacturers competing in an increasingly crowded market have every reason to invest in this area. By supporting their retail channels, players would establish their particular brand at the forefront of the Indian consumer’s mind. This would both grow their consumer base and win them greater market share.