India Food & Drink 2014 Q2 Report

Q2 2014
www.businessmonitor.com
INDIA
FOOD & DRINK REPORT
INCLUDES 5-YEAR FORECASTS TO 2018
ISSN 1749-2742
Published by:Business Monitor International
India Food & Drink Report Q2 2014
INCLUDES 5-YEAR FORECASTS TO 2018
Part of BMIs Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: February 2014
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CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 9
Food ....................................................................................................................................................... 9
Drink .................................................................................................................................................... 11
Mass Grocery Retail ................................................................................................................................ 13
Industry Forecast .............................................................................................................. 15
Consumer Outlook ................................................................................................................................... 15
Food ..................................................................................................................................................... 17
Food Consumption ................................................................................................................................. 17
Table: Food Consumption Indicators - Historical Data & Forecasts, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Confectionery ........................................................................................................................................ 19
Table: Confectionery Value/Volume Sales - Historical Data & Forecasts, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Dairy ................................................................................................................................................... 20
Table: Dairy Volume Sales & Production - Historical Data & Forecasts, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Snack Foods .......................................................................................................................................... 22
Table: Snack Foods Volume Sales - Historical Data & Forecasts, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Drink .................................................................................................................................................... 22
Hot Drinks ............................................................................................................................................ 22
Table: Hot Drinks Value/Volume Sales - Historical & Forecasts, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Alcoholic Drinks .................................................................................................................................... 23
Table: Alcoholic Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Soft Drinks ............................................................................................................................................ 27
Table: Soft Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Table: MGR Sales By Format - Historical Data & Forecasts, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Trade .................................................................................................................................................... 31
Table: Food & Drink Trade Indicators - Historical Data & Forecasts, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Macroeconomic Forecast ................................................................................................ 32
Economic Analysis ................................................................................................................................... 32
Table: India - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Industry Risk Reward Ratings .......................................................................................... 38
Asia Pacific Risk/Reward Ratings ............................................................................................................... 38
Table: Asia Pacific Food & Drink Risk/Reward Ratings Q214 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Table: Asia Pacific Food & Drink Risk/Reward Sub-Factor Ratings Q214 (scores out of 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
India Food & Drink Risk/Reward Ratings .................................................................................................... 43
Market Overview ............................................................................................................... 44
Food ..................................................................................................................................................... 44
Business Monitor International Page 4
Food Processing .................................................................................................................................... 44
Food Consumption ................................................................................................................................. 44
Confectionery ........................................................................................................................................ 45
Canned Food ........................................................................................................................................ 47
Trade ................................................................................................................................................... 47
Agriculture ........................................................................................................................................... 47
Rice ..................................................................................................................................................... 48
Dairy ................................................................................................................................................... 48
Drink .................................................................................................................................................... 50
Soft Drinks ............................................................................................................................................ 50
Hot Drinks ............................................................................................................................................ 51
Alcoholic Drinks .................................................................................................................................... 53
Table: Structure Of India's Mass Grocery Retail Market By Estimated Number Of Outlets, 2005-2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Table: Structure Of India's Mass Grocery Retail Market - Sales By Format (US$mn), 2005-2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Table: Structure Of India's Mass Grocery Retail Market - Sales By Format (INRmn), 2005-2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Table: Grocery Retail Sales By Format (%) - Historical Data & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Industry Trends And Developments ................................................................................ 63
Food ..................................................................................................................................................... 63
Key Industry Trends And Developments ...................................................................................................... 63
Drink .................................................................................................................................................... 67
Competitive Landscape .................................................................................................... 73
Table: Key Players In India's Food & Drink Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Table: Key Players In India's Mass Grocery Retail Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Company Profile ................................................................................................................ 75
Hindustan Unilever Limited ....................................................................................................................... 75
Gujarat Co-operative Milk Marketing Federation .......................................................................................... 78
Britannia ............................................................................................................................................... 80
PepsiCo India ......................................................................................................................................... 83
United Breweries ..................................................................................................................................... 86
Coca-Cola India ...................................................................................................................................... 89
SABMiller India ...................................................................................................................................... 92
RPG Retail ............................................................................................................................................. 95
Pantaloon Retail India .............................................................................................................................. 97
Global Industry Overview ................................................................................................ 101
Table: Food And Drink Core Views . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Demographic Forecast ................................................................................................... 111
Demographic Outlook ............................................................................................................................ 111
Table: India's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Table: India's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Table: India's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Table: India's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Glossary ........................................................................................................................... 115
Food & Drink ...................................................................................................................................... 115
Mass Grocery Retail ............................................................................................................................. 115
Methodology .................................................................................................................... 117
Industry Forecast Methodology .............................................................................................................. 117
Sector-Specific Methodology .................................................................................................................. 118
Sources .............................................................................................................................................. 118
Risk/Reward Rating Methodology ........................................................................................................... 119
Table: Food & Drink Risk/Reward Rating Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Table: Weighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
BMI Industry View
BMI View: Over the long term, the Indian economy presents one of the best growth stories globally. The
Indian population is the second largest in the world and is forecast to continue to grow for decades. Real
GDP will also grow at an average of around 6% to 2023, with per capita incomes rising at a similar rate.
We forecast that inflation will average at around 4% over the longer term, which should be a sustainable
level for the economy. We maintain a bullish long-term outlook on food consumption within the country,
especially as multinationals penetrate the market with greater force, and industry regulation becomes more
favourable to foreign investors. However, the country will experience significant headwinds in the short
term, being affected by a general emerging markets slowdown and a weak Indian rupee. The country also
has one of the largest income inequalities in the world, as well as significant infrastructure and
bureaucratic issues. That said, the sheer size of the market will result in impressive growth across many
sectors over our forecast period.
Headline Industry Forecasts
2014 food consumption growth = +6.1%; compound annual growth rate (CAGR) 2014-2018 = +6.5%.
2014 alcoholic drink local currency value sales growth = +11.7%; CAGR 2014 to 2018 = +11.4%.
2014 soft drink local currency value sales growth = +16.2%; CAGR 2014 to 2018 = +14.7%.
2014 mass grocery local currency retail sales = +14.5%; CAGR 2014 to 2018 = +12.2%.
Key Company Trends
Ongoing Interest In Indian Fast Food: Valued at US$12bn according to the Financial Times (FT), there
remains a great deal of scope for growth within the Indian fast food sector, primarily from Western firms.
New firms have been steadily entering into the market, though the Indian consumer's substantially different
food and cultural taste, as well as the country's poor infrastructure, remain significant stumbling blocks for
Western fast food retailers.
Western interest in the Indian fast food industry is as strong as ever, with Krispy Kreme, Burger King,
McDonald's and Yum! Brands' Taco Bell having all announced expansion plans or new openings in the
country in the past few months. According to the FT, the Indian fast food market is currently worth US
$12bn, with foreign brands making up only 5% of this. With the market dominated by local independents
providing traditional Indian cuisine, there is a great deal of room for multinational chains to establish
themselves.
Walmart's Return To India Highlights Potential: US based grocery retailer Walmart will re-enter the
Indian mass grocery retail (MGR) market with a new partner, having ended its deal with
Bharti Enterprises in October 2013. The U-turn by Walmart highlights the massive potential offered by
the Indian MGR sector, outperforming that of all developed nations.
According to India's Ministry of Corporate Affairs, the retailer has registered a new company called Wal-
Mart India Pvt. Ltd, but has not announced who its new partner will be. India notoriously has strict rules
regarding foreign retail investment, allowing a maximum of 51% foreign control in its retail stores. As
Walmart parted ways with Bharti, the world's largest retailer said that it would review the foreign direct
investment policy in multi-brand retail before looking to enter the segment.
Multinational retailers have recently stepped up efforts to create a strong base in India. In December 2013,
UK retailer Tesco signed a deal with the Tata Group conglomerate for an investment of US$110mn,
despite the company deleveraging from many of its international operations over the past 12 months.
Similarly, French retailer Carrefour has recently announced further investment into its Indian operations, at
a time when it is predominantly concentrating on its European business.
PepsiCo Commits US$5.5bn To India: PepsiCo will invest INR33,000 (US$5.5bn) into India by the end of
2020, CEO Indra Nooyi said on November 11 2013. The investment will go into all forms of the company's
Indian business, particularly concentrating on product innovation, manufacturing, infrastructure and
agriculture. Though The Coca-Cola Company is the largest beverage provider in India, PepsiCo is the
largest combined food and drink business in the country, active across a diverse range of beverage and
snacks sub-sectors. In recent years, PepsiCo has extensively invested in India to remain ahead of its
multinational rivals. The company has developed many strategic partnerships in the region, such as that
with Tata Tea in 2010, in order to develop local market knowledge and take advantage of supply chains.
Bharti & Walmart Call Off Joint Venture: US mass grocery retailer Walmart and Indian conglomerate
Bharti Enterprises will end their retail joint venture, Bharti-Walmart, in India. The move comes amid
several regulatory investigations and the Indian government's strict foreign investment regulations for the
retail sector. The two partners will dissolve Bharti-Walmart and focus on running independent businesses in
the country. Walmart will acquire Bharti's 50% stake in the Best Price Modern Wholesale cash-and-carry
division and continue to operate it in India, while Bharti will acquire complete ownership of the retailing
joint venture Easyday.
SWOT
Food
SWOT Analysis

Strengths

Foreign food companies continue to target the Indian market, with sub-sectors such
as edible oils benefiting from significant investment.
India's abundance of natural agricultural resources makes the market attractive to

investors from all food sub-sectors.
The long-term story for Indian food consumption is promising, as a young and
increasing population, coupled with rising incomes, will drive growth.
Weaknesses

The processed food industry is less developed than other comparable countries as a
result of logistical and distribution problems.
The country's agricultural industry, despite having huge potential, suffers from a lack
of investment and dependency on erratic climatic conditions.
Specific state-by-state legislation governing aspects of high-value business, such as

retail store opening hours, hinders nationwide business strategies and can be time-
consuming and cumbersome.
Agriculture remains inefficient and is vulnerable to climatic changes. Two-thirds of the

population depends on farming for its livelihood.
Despite rapid economic growth, India remains a very poor country.

Opportunities

The government is actively seeking investment in the food processing and
agribusiness industries, suggesting that companies expressing an interest would be
granted a very liberal investment climate.
Rising disposable incomes and increasing urbanisation mean higher-value processed

foods are likely to experience strong growth rates, especially with the levels of
investment being committed by many multinational companies.
SWOT Analysis - Continued
The immense size of India's population and landmass ensure that market maturity is a
distant prospect.
Although non-essential consumer goods are barely established at the mass-market

level, 'premiumisation' is already becoming a viable growth option, particularly among
younger consumers in major urban centres.
Threats

Logistical problems, underdeveloped service networks and poor infrastructure hinder
development in fresh food industries, such as dairy.
The division between the urban rich and the rural poor is as great as ever, meaning
food manufacturers do not have access to the entire population, or even the majority
of it.
Drink
SWOT Analysis

Strengths

Foreign drink companies continue to target the Indian market, with sub-sectors such
as soft, alcoholic and hot beverages benefiting from significant investment.
India's abundance of natural agricultural resources makes the market attractive to

investors from all beverage sub-sectors.
India has an enormous and still-growing population of 1.2bn, with a rapidly expanding
middle class.
Per capita consumption of alcoholic beverages is very low by global standards,

indicating plenty of room for growth.
Weaknesses

Specific state-by-state legislation governing aspects of high-value business, such as
alcohol taxes, hinders nationwide business strategies and can be time-consuming
and cumbersome.
Alcoholic and soft drinks are still considered a luxury by a large percentage of the
population.
Poor infrastructure remains a significant deterrent to investment from multinational

companies.
Despite rapid economic growth, India remains a very poor country.
Companies have to invest large amounts in advertising, marketing and distribution

along with each new product launch.
Opportunities

Rising disposable incomes and increasing urbanisation mean higher-value beverages
are likely to experience strong growth rates, especially with the levels of investment
being committed by many multinational corporations.
A number of drinks sectors offer substantial potential in India for further growth,
including bottled water, beer and soft drinks.
The immense size of India's population and landmass ensure that market maturity is a
distant prospect.
Although non-essential consumer goods are barely established at the mass-market

level, premiumisation is already becoming a viable growth option, particularly among
younger consumers in major urban centres.
Threats

The division between the urban rich and the rural poor is as great as ever, meaning
drink manufacturers do not have access to the entire population - in fact, not even the
majority of it.
India has experienced terrorist attacks, which have had a negative impact on tourism
levels and drinks sales, in particular alcoholic drinks. Any future attacks would
exacerbate the problem.
Mass Grocery Retail
SWOT Analysis

Strengths

India's mass grocery retail sector is developing, and there is scope for considerable
expansion across all formats and across all regions of the country.
New and existing retailers have announced a series of expansion plans, with
companies targeting growth outside their established region. This is partly in
preparation for the now-inevitable arrival of foreign retailers, which will heighten
competition dramatically.
India has a very large domestic market, and rising domestic demand is a major driver
of economic growth.
Weaknesses

Widespread poverty and the country's size and regional diversity act as impediments
to the development of the mass grocery retail sector; sector growth to date has been
confined to major urban areas, where salaries are higher and infrastructure is better
developed.
Distribution remains a major challenge to retail expansion, with retailers often having
to invest heavily in the supply chain before opening new stores.
India's infrastructure is notoriously inadequate. A 500km road journey can take as

much as 24 hours owing to poor road conditions, congestion and tolls.
Government restrictions on foreign investment in the retail sector remain overly

confusing and draconian, preventing further foreign involvement in the industry.
Opportunities

Investment in the discount retail sector provides a means of targeting lower-income
consumers outside of major urban centres, who will become a key market once the
sector begins to mature.
Likewise, investment in the convenience sector will enable retailers to capitalise on

the increasingly busy lifestyles of consumers living in urban areas.
For multinational corporations, the hypermarket sector is a good opportunity, with few
hypermarkets present owing to many local operators being unable to afford the higher
set-up costs of such outlets.
In the long term, well beyond the current forecast period, rural retailing represents an
opportunity for financially powerful firms that can afford to offer low prices.
India's emerging middle class will continue to drive demand for new goods and
services.
Threats

Many consumers remain wary of modern retail owing to its perceived detrimental
impact on the role of traditional retail in society.
Low prices remain integral to luring shoppers away from traditional retail formats;
elevated operating costs could undermine retailers' efforts to offer these.
The government's previous move to backtrack on its decision to allow foreign direct
investment in India's multi-brand retail sector has sent out a negative message to
foreign investors about the lack of stability in the country's policymaking process and
could potentially deter foreign investments in the sector.
Industry Forecast
Consumer Outlook
Starting with the massive sell-off in the rupee, which began in May 2013, economic headwinds in India
have accumulated quickly and in a big way. We have therefore downgraded our growth expectations for
Asia's third largest economy. We now see full-year real GDP growth of 5.5% for 2014, although we expect
this to pick up over the following 2 years. This downgrade is not taking place in isolation, as we have made
similar revisions to the outlook for other emerging markets recently. While a recent slowdown in the rate of
inflation has allowed the Reserve Bank of India to increase interest rates recently, however prices are
expected to increase at a faster rate in the near future, which will put further stress on consumer spending.
We currently forecast inflation of 5.75% for 2014, down from 7.0% the previous year.
With these headwinds in mind, we have decided to downgrade our real growth projections for private
domestic demand (private consumption plus gross fixed capital formation). For 2014, our private
consumption growth forecast stands at 3.5% (from 4.5% previously), while our projection for fixed capital
formation has been taken down to a similar rate of 3.5% (from 6.0%). We have also downgraded our import
growth projection to 3.0% (from 4.0% previously).
In an attempt by the government to regain the support of the Indian voting public via expansionary fiscal
means, the 2013 National Food Security Bill passed the Lok Sabha (lower house) on August 26 2013 and
the Rajya Sabha (upper house) on September 2 2013. The US$20bn scheme, which aims to distribute
subsidised grains to around 800mn people, poses a downside risk to the country's fiscal stability, as the
resulting upside pressure on the government's subsidy bill could easily result in a blowout of its initial
expenditure plans. The bill will only moderately relieve malnutrition among the poorest sections of the
population, as it does not address some of the underlying causes of hunger in the country. Indeed, it has the
potential to increase the government's medium-term fiscal deficit by 0.5 percentage points.
Rising Fiscal Burden
India - Food Subsidy In Central Budget
Source: BMI, Ministry of Finance (India)
Long-Term Outlook Promising
Despite the economic challenges, the long-term potential of the Indian food and drink market is undeniable.
Foreign consumer goods investors will, however, continue to face considerable challenges in expanding
their footprints. As one of the most dynamic consumer markets in the Asia Pacific region, there is plenty to
suggest that consumer-facing companies in India will do well over the longer term. Rapid income growth, a
young and growing population and a continued influx of investments underline the potentially fruitful
opportunities on offer on the consumer side.
India has a young and rapidly growing population of more than 1.2bn. As the massive youth demographic
group gradually matures and climbs up the income ranks, opportunities provided by the mass-market are the
ones that catch the eye. Although India's 2012 estimated per capita GDP of US$1,680 suggests that
consumer spending is coming from an extremely low base, this translates into tremendous room for growth.
Risk To Outlook
The stage is set for India's economy to make a comeback, but we stress that significant challenges remain.
Externally, India is less exposed to China than most, which is a positive versus the rest of the region.
However, it is tied to the eurozone economy and any relapse in the currency bloc would pose downside
commercial and financial risks to India.
The greatest challenges arguably come from within. Firstly, India's public finances remain in a precarious
position, meaning that fiscal consolidation will have to be addressed in 2014 to stave off the threat of a
ratings downgrade. While such a scenario would be negative for near-term growth, it would help to further
anchor inflation expectations and allow monetary easing to take place faster and with more aggression.
Failure to put the fiscal house back in order, therefore, is a key risk. Secondly, we noted recently (see
'Election Scenarios: The Good, The Bad, And The Ugly', December 4) that India's elections could yet throw
up some surprises. The worst-case scenario of a 'Third Front' coalition made of smaller, regional parties
each with their own distinctive provincial priorities would dash any reform hopes and further hold back the
country's investment recovery.
Food
Food Consumption
Food consumption (local currency) growth for 2014 = +6.1%; compound annual growth rate (CAGR)
2014 to 2017 = +6.5%
Per capita food consumption growth for 2014 = +4.8%; CAGR 2014 to 2017 = +5.3%
Industry dynamism in the Indian food sector, the continued spread of organised retail and a very positive
long-term domestic demand outlook will ensure strong growth in food consumption levels over our forecast
period to 2018. While the majority of the Indian population will continue to load up their shopping baskets
with daily essentials and food staples, we expect a change of consumption habits over the long term as
rising purchasing power sees consumers trade up to more expensive foodstuffs and non-essential purchases.
We forecast real GDP per capita rising at an average annual rate of 5.1% between 2014 and 2018. However,
the Indian economy faces significant headwinds in the short term, and with this in mind, overall food
consumption levels are forecast to increase by a modest CAGR of 6.5% between 2014 and 2018.
The continued spread of organised retail will cater to this emerging consumer base as local operators look to
shore up their market share in preparation for the imminent arrival of overseas competition. The mass
grocery retail industry is expected to help drive up food consumption by presenting consumers with a much
wider range of higher value products and encouraging purchases of items beyond those necessary.
The attractiveness of the Indian food market will maintain industry dynamism and drive food consumption
levels. A dynamic industry is likely to fuel competition, which would in turn heighten marketing and
promotional spending, and drive down the price of non-essential, added-value items. Such a trend would
drive food spending in value terms, with higher volume sales offsetting slightly lower per-unit sales prices.
The total growth of food consumption, in local currency terms, is not as considerable as one might expect
given the rapid rate of Indian economic growth. The inhibiting factor, at least for the foreseeable future, is
income inequality between India's wealthier urban residents and its rural poor.
Multinational consumer goods companies face difficulty in distributing their products to such a diversified
audience. PepsiCo, for example, has rolled out a new potato chips band 'Lehar', which is sold 40% cheaper
than its Lay's product. Domestic firms, with a greater understanding of regional markets, win the battle on
their pricing strategies. Domestic firm Balaji Wafers, which manufactures potato chips, sells its products
for as low as US$0.08.
As the Indian consumer reaps the fruits of the country's long term economic boom, this is likely to translate
into greater demand for eating out and for Western foodstuffs; McDonald's and Jubilant Foodworks are
already capitalising on this trend. Indians have always been fond of eating out, driving an increase in the
number of bustling street food outlets across all big cities. What has changed over the past decade is that,
with more money to spend, middle-class Indians have been increasingly eating out at more expensive
restaurants, with casual dining in particular doing well.
Table: Food Consumption Indicators - Historical Data & Forecasts, 2011-2018
2011 2012 2013 2014f 2015f 2016f 2017f 2018f
Food consumption (US$bn) 215.2 198.2 189.2 204.1 222.0 235.3 249.9 265.2
Food consumption (INRbn) 10,044.9 10,589.3 11,160.8 11,840.6 12,577.1 13,392.2 14,295.0 15,246.6
Per capita food
consumption (US$) 176.2 160.3 151.1 161.1 173.2 181.4 190.5 200.0
Per capita food
consumption (INR) 8,225.7 8,562.6 8,913.4 9,342.4 9,807.5 10,324.9 10,899.9 11,501.5
Total food consumption
growth (INR, y-o-y) 6.9 5.4 5.4 6.1 6.2 6.5 6.7 6.7
Per capita food
consumption growth (INR,
y-o-y) 5.5 4.1 4.1 4.8 5.0 5.3 5.6 5.5
f = BMI forecast. Source: Central Statistical Organisation, BMI
Confectionery
Confectionery volume sales growth for 2014 = +6.0%; CAGR 2014 to 2018 = +6.9%.
Confectionery value sales growth (local currency) for 2014 = +12.1%; CAGR 2014 to 2018 = +11.3%.
Chocolate value sales growth (local currency) for 2014=+12.7; CAGR 2014 to 2018=+12.1.
India's confectionery sector continues to be one of the food sector's most dynamic, with tremendous
potential for long-term growth. BMI is forecasting a CAGR of 6.9% in confectionery volume sales between
2014 and 2018 as demand for confectionery products accelerates from a low base.
Rapid economic growth, increasing disposable income, urbanisation and the continued spread of mass
grocery retail will all serve to stimulate the demand for confectionery products. The chocolate segment in
particular is expected to be the biggest beneficiary of consumer up-trading, with a forecast CAGR of 12.1%
in local currency value terms between 2014 and 2018. Buoyed by higher incomes, Indian consumers are
gradually gravitating towards higher value products in line with growing familiarity with Western cultures.
Indian food industry players are clearly gearing up to capitalise on this strong growth opportunity within the
confectionery sector. They are continuing to diversify into multiple product categories to expand their target
audience and explore new consumption opportunities. US coffee and baked goods chain Dunkin' Donuts
announced that it will be bringing its sugary treats to India and is aiming to set up 25 to 30 stores within the
first three years of its partnership (2011-2014) with Jubilant Foodworks. Also testament to the
attractiveness of the Indian confectionery market is Britannia's investment of more than INR2bn (US
$43.8mn) for the fiscal year ending March 2012, which was used to establish production plants. These
expansionary efforts are likely to instil considerable additional dynamism in the market and further buoy
confectionery sales.
Table: Confectionery Value/Volume Sales - Historical Data & Forecasts, 2011-2018
2011 2012 2013 2014f 2015f 2016f 2017f 2018f
Chocolate sales
(tonnes) 67710.1 70403.9 74254.2 79127.1 84930.4 91529.9 98714.2 106163.8
Sugar confectionery
sales (tonnes) 249110.9 256963.7 271089.4 287845.4 307100.6 328620.5 351983.5 376497.9
Gum sales (tonnes) 98853.7 101817.5 106049.2 111479.8 117960.4 125295.2 133201.8 141276.9
Confectionery sales
(tonnes) 415674.8 429185.1 451392.8 478452.3 509991.4 545445.6 583899.5 623938.6
Confectionery sales
growth, tonne, (y-o-y) 6.3 3.3 5.2 6.0 6.6 7.0 7.1 6.9
Chocolate sales
(INRmn) 27084.1 30435.4 34346.9 38705.4 43413.7 48658.5 54576.9 61043.5
Sugar confectionery
sales (INRmn) 36619.3 40823.6 46082.5 51744.4 57690.1 64202.0 71517.0 79557.8
Gum sales (INRmn) 26690.5 29710.4 33111.4 36808.4 40700.8 44960.9 49710.0 54832.5
Confectionery sales
(INRmn) 90393.9 100969.5 113540.8 127258.2 141804.5 157821.4 175803.9 195433.8
Confectionery sales
growth, INR, (y-o-y) 15.3 11.7 12.5 12.1 11.4 11.3 11.4 11.2
Chocolate sales (US
$mn) 580.2 569.7 582.2 667.3 766.5 854.8 954.0 1061.7
Sugar confectionery
sales (US$mn) 784.5 764.1 781.1 892.1 1018.5 1127.8 1250.1 1383.7
Gum sales (US$mn) 571.8 556.1 561.2 634.6 718.6 789.8 868.9 953.7
Confectionery sales
(US$mn) 1936.6 1890.0 1924.4 2194.1 2503.6 2772.5 3073.0 3399.1
f = BMI forecast. Source: Central Statistical Organisation, Company information, BMI
Dairy
India is the largest consumer and producer of milk in the world, also having one of the largest per capita
figures at around 40kg per year. Half a century ago, India was the largest net importer of milk in the world,
but a drive spearheaded by Amul Dairy, dubbed 'the white revolution', has made India self-sufficient in its
dairy requirements.
We forecast per capita consumption of processed liquid milk to grow 13.7% between 2014 and 2018,
reaching a figure of 47.0kg by the end of our forecast period. Encouragingly, we forecast liquid milk
production to just outpace demand as a result of government incentives to keep the country self- sufficient
in its dairy requirements.
Continued Strong Growth In Milk
Liquid Milk Consumption - Total (000 tonnes) & Per Capita (kg)
Liquid Milk Consumption, '000 tonnes (LHS)
Liquid Milk Consumption, kg per capita (RHS)
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
f
2
0
1
5
f
2
0
1
6
f
2
0
1
7
f
2
0
1
8
f
0
25,000
50,000
75,000
0
20
40
60
f= BMI forecast. Sources: FAPRI, BMI
Table: Dairy Volume Sales & Production - Historical Data & Forecasts, 2011-2018

2011 2012 2013 2014f 2015f 2016f 2017f 2018f
Processed liquid milk production, mn tonnes 117.02 120.88 124.95 129.69 135.27 141.51 148.26 155.42
Processed liquid milk sales, mn tonnes 48.24 49.50 50.67 52.40 54.57 57.06 59.72 62.34
Processed liquid milk sales, kg per capita 39.50 40.03 40.47 41.34 42.55 44.00 45.54 47.02
f = BMI forecast. Source: FAPRI, BMI
Snack Foods
Snack goods are set to be one of the fastest growing sectors in the Indian food industry. We forecast
crispbread volume sales to increase by 48.8% between 2014 and 2018, as younger, richer Indian consumers
gain better access to the market. Multinational firm PepsiCo dominates the market, though between 2008
and 2012 lost 12.9% of its market share. Domestic players such as Balaji Wafers and Prakash Snacks
have developed their offerings and are well placed to take advantage of this growing market.
Table: Snack Foods Volume Sales - Historical Data & Forecasts, 2011-2018

2011 2012 2013 2014f 2015f 2016f 2017f 2018f
Crispbreads sales, '000 tonnes 1,700 1,863 2,036 2,237 2,474 2,739 3,026 3,330
Crispbreads sales, kg per capita 1.39 1.51 1.63 1.77 1.93 2.11 2.31 2.51
Sweet biscuits sales, '000 tonnes 1,010 1,047 1,080 1,119 1,163 1,214 1,267 1,325
Sweet biscuits sales, kg per capita 0.83 0.85 0.86 0.88 0.91 0.94 0.97 1.00
f = BMI forecast. Source: UN Industrial Commodity Statistics Database, UN Comtrade, BMI/ BMI Calculation
Drink
Hot Drinks
Coffee volume sales growth for 2014 = +7.7%; compound annual growth rate (CAGR) 2014 to 2018=
+8.9%
Coffee value sales growth (in local currency terms) for 2014= +13.9%; CAGR 2014 to 2018= 13.4%
Tea volume sales growth for 2014 = +5.3%; CAGR 2014 to 2018 = +6.1%
Tea value sales growth (in local currency terms) for 2014= +11.3%; CAGR 2014 to 2018= +10.4%
The Indian tea sector is fairly mature given the presence of major tea manufacturers such as Tata Global
Beverages and Apeejay. Between 2014 and 2018, BMI is forecasting volume sales to grow by a modest
compound annual rate of 6.1%, at which point tea volume sales will reach 1.44mn tonnes (1.1kg per capita).
Value sales are forecast to rise at a faster rate, with a CAGR to 2018 of 10.4%. This represents good
growth, especially given the developed nature of the Indian tea sector. Local tea manufacturers, however,
are beginning to look abroad for future growth opportunities, with the specialty tea markets of the US and
the UK proving particularly attractive.
The outlook for the Indian coffee sector is much more attractive as a result of lower levels of market
saturation and continued industry dynamism. BMI is forecasting a CAGR of 13.4% to 2018, in local
currency terms, as the country's rapidly expanding middle class embraces caf culture.
Sustained high levels of investment in the Indian coffee sector are another key driver behind our coffee
forecast. Fresh & Honest's recent espresso partnership with Illy and the entrance of Costa Coffee show a
clear trend towards premiumisation in the industry. Local players have also entered the high-growth caf
sector, with domestic chain Caf Coffee Day the largest in the country.
Table: Hot Drinks Value/Volume Sales - Historical & Forecasts, 2011-2018
2011 2012 2013 2014f 2015f 2016f 2017f 2018f
Coffee
sales
(tonnes) 109,252.0 116,589.4 123,932.0 133,500.1 145,087.4 158,394.2 172,951.7 188,052.4
Coffee
sales
(INRmn) 37,145.7 42,841.1 48,726.9 55,506.9 63,039.3 71,573.9 81,278.1 91,909.6
Coffee
sales
(US
$mn) 795.8 801.9 825.9 957.0 1,113.0 1,257.3 1,420.7 1,598.6
Tea
sales
(tonnes) 993,200.0 1,040,172.1 1,087,653.1 1,145,058.6 1,211,543.6 1,285,866.4 1,366,063.8 1,449,151.8
Tea
sales
(INRmn) 364,504.4 412,566.3 461,596.8 513,902.2 568,209.0 627,188.7 692,957.7 764,509.6
Tea
sales
(US
$mn) 7,809.1 7,722.5 7,823.7 8,860.4 10,031.7 11,017.9 12,112.7 13,296.9
Alcoholic Drinks
Alcoholic drinks value sales growth in local currency terms for 2014 = +11.7%; CAGR 2014 to 2018 =
+11.4%.
Alcoholic drinks volume sales growth for 2014 = +5.5 %; CAGR 2014 to 2018 = +6.9%.
Beer value sales growth in local currency terms for 2014 = +11.5%; CAGR 2014 to 2018= +11.1%
Spirits value sales growth in local currency terms for 2014 = +11.9%; CAGR 2014 to 2018= +11.7%
Wine value sales growth in local currency terms for 2014 = +14.9%; CAGR 2014 to 2018= +13.1%
The alcoholic beverages industry in India is dominated in equal parts by beer and spirits, with the wine
market a distant and undeveloped third. In 2013, beer sales were estimated to have come in at INR370.5bn
(US$6.3bn), with spirits sales estimated to have been just higher at INR407.0bn (US$6.9bn). While both
significant amounts, this is only due to the sheer size of the Indian market. Per capita consumption of beer
in 2013 is estimated to be only 1.6 litres per capita, with annual spirits sales of only 0.3 litres per capita in
the same year. Despite large gains across the Indian food and beverage market, the alcoholic drinks market
is not forecast to deliver growth that would be expected in a fairly undeveloped market with a growing,
young and economically active consumer base. We forecast per capita sales of beer and spirits to rise to
only 2.1 litres and 0.4 litres respectively by 2018.
Disappointing Growth
Per Capita Alcoholic Drinks Sales & Growth (% y-o-y)
Alcoholic drinks sales, litres per capita (LHS)
Alcoholic drink sales, litres~ % chg y-o-y (RHS)
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
e
2
0
1
3
e
2
0
1
4
f
2
0
1
5
f
2
0
1
6
f
2
0
1
7
f
2
0
1
8
f
0
1
2
3
0
5
10
15
20
Sources: Central Statistical Organisation, Company information, BMI/BMI calculation
Given the consumer dynamics in India, the beer industry could have been expected to take off in a big way
over the past decade. Incomes in the country have increased strongly, and in many emerging economies this
middle-class consumer has propelled the global beer industry just as Western markets have started to cool
down. India also ticks a lot of boxes in terms of its demographics, namely its huge population. However,
perhaps more so than any of the other BRIC countries of Brazil, Russia, India and China, India has posed
real challenges to multinational beer companies. Although India's spirits industry has boomed, the same has
not been seen in the beer segment. We highlight a number of reasons for beer's underperformance, the main
ones being:
Culture: Beer consumption is not widespread, and advertising is not without its regulatory hurdles. It is
not easy to advertise beer through conventional channels such as television; United Breweries Group has
advertised its Kingfisher brand on its namesake airline, for example.
Taxation: India generally taxes beer heavily, which prices out much of the potential consumer market.
Access: It is not easy to buy beer across much of the country. Permits are needed in some states, and in
many cities on/off trade outlets are often not readily accessible.
Price: Beer is relatively very expensive in India. As mentioned previously, it is taxed heavily and as a
result taxes comprise a large chunk of the commercial price of beer. Without the scale that one would
assume for a market of India's size, it has been difficult for companies to generate strong profit margins.
Low Profit Margins: Indeed, because of the high taxes, lack of real scale and high operating costs
(including distribution and power outages), profit margins on beer are generally relatively low in India.
Despite all this, in our view the sheer scale of the Indian consumer market is so tempting that foreign beer
companies will continue to see the country as a major opportunity. United Breweries, which is 40.7%
owned by Heineken, dominates the market with its Kingfisher beer. Somewhat uniquely, Kingfisher is
successful across the market, from low- to middle-income consumers to high-income Indians drinking beer
in expensive hotels. United Breweries, and by extension Heineken, has done very well over the past few
years.
Similarly to United Breweries, India's largest spirits manufacturer, United Spirits, has attracted interest
from multinational firms. UK-based Diageo is currently in the process of buying a majority stake in the
company following a breakdown in talks during 2008. As said, the spirits market has experienced and is
forecast to continue successful growth. In our view, the spirits sector will outperform the alcoholic drinks
market, due to its inherently premium nature. In this way, distillers can target the ever-growing high-income
segment of the Indian population in a way that brewers cannot. In November 2013 Diageo announced that
its growth strategy within India would revolve around marketing premium spirits rather than providing to
the mass market.
The wine sector in India is small, yet not insignificant, and is forecast to grow faster than both beer and
spirits in both volume and value sales. That said, it must be noted that wine sales are coming from a much
smaller base, with per capita consumption barely registering at 0.02 litres per year.
Table: Alcoholic Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Alcoholic
drinks
sales
(mn litres) 2,256.9 2,338.5 2,428.5 2,561.6 2,729.0 2,921.7 3,127.3 3,330.4
Alcoholic
sales
growth,
litres,
(y-o-y) 4.2 3.6 3.8 5.5 6.5 7.1 7.0 6.5
Wine
sales
(mn litres) 17.2 18.2 19.9 21.6 23.5 25.5 27.7 30.1
Beer sales
(mn litres) 1,889.7 1,955.9 2,028.2 2,137.6 2,275.4 2,433.7 2,602.2 2,767.9
Spirits
sales
(mn litres) 350.0 364.4 380.3 402.4 430.1 462.6 497.4 532.4
Alcoholic
drinks
sales
(INRmn) 631,953.9 709,336.2 790,296.9 882,995.5 984,672.5 1,098,679.7 1,225,733.9 1,360,861.4
Alcoholic
sales
growth,
INR,
(y-o-y) 13.4 12.2 11.4 11.7 11.5 11.6 11.6 11.0
Wine
sales
(INRmn) 9,524.7 10,901.1 12,757.1 14,654.9 16,625.2 18,777.2 21,215.5 23,979.3
Beer sales
(INRmn) 298,577.8 333,979.9 370,580.8 413,022.5 459,433.2 511,038.5 568,283.4 628,642.5
Spirits
sales
(INRmn) 323,851.4 364,455.3 406,959.0 455,318.2 508,614.1 568,864.0 636,234.9 708,239.6
Alcoholic
drinks
sales
(US$mn) 12,183.1 13,539.0 13,277.5 14,112.4 16,351.8 17,858.5 19,827.0 22,009.8
Wine
sales
(US$mn) 204.1 204.0 216.2 252.7 293.5 329.9 370.8 417.1
Beer
sales
(US$mn) 6,396.7 6,251.5 6,281.0 7,121.1 8,111.3 8,977.5 9,933.4 10,933.8
Spirits
sales
(US$mn) 6,938.2 6,821.9 6,897.6 7,850.3 8,979.6 9,993.3 11,121.2 12,318.3
e/f = BMI estimate/forecast. Source: Central Statistical Organisation, Company information, BMI
Soft Drinks
Soft drinks volume sales growth for 2014 = +6.6%; CAGR 2014 to 2018 = +7.4%.
Soft drinks value sales growth in local currency terms for 2014 = +16.3%; CAGR 2014 to 2018 =
+14.7%.
Carbonated soft drinks value sales growth in local currency terms for 2014 = +6.9%; CAGR 2014 to
2018= +6.8%
Bottled water value sales growth in local currency terms for 2014 = +16.6%; CAGR 2014 to 2018=
+15.1%
The Indian soft drinks market is well placed to offer the fastest absolute and relative growth across all
global markets. Both local and multinational soft drinks producers have and continue to adopt aggressive
expansion plans, with global powerhouses The Coca-Cola Company and PepsiCo leading the way.
While all segments of the soft drink sector are forecast to experience outstanding growth, we believe that
bottled water, functional drinks and fruit/vegetable drinks will outperform, in line with our global view. In
our view, volume sales of bottled water, functional drinks and fruit/vegetable drinks will rise between 2014
and 2018 by 46.9%, 56.7% and 49.3% respectively. Comparatively, we forecast carbonated soft drinks
volume sales to increase by 30.0% between 2014 and 2018. Carbonated soft drinks value sales growth rivals
that of the outperforming trio, largely because manufamanufacturers of such drinks can afford to price their
products at more of a premium.
Though we expect both functional drinks and fruit/vegetable drinks to grow faster than carbonated
beverages, reasons behind the outperformance are not strictly the same as in other markets. We hold the
view that, predominately in developed markets, consumers will increasingly switch to beverages that are
perceived to be healthier than carbonated drinks. However this may not be the case in India. The CEO of
PepsiCo, Indra Nooyi, has argued that despite this global shift in consumer habits to healthier food, Indian
consumers are not adhering to such a trend. Instead, Indian consumers continue to choose products that
satisfy their regional palate regardless of their perceived health benefits. Nooyi has attributed the poor
performance and subsequent withdrawal of PepsiCo's health focused 'Better For You' range to this dynamic.
As such, good performance in both functional drinks and fruit/vegetable drinks comes from inherent
demand.
Examples of recent activity in the 'healthy' drinks sector include the launch of juice drink Tang Mango by
Cadbury India, a local subsidiary of US-based Kraft Foods. Local soft drinks company Rasna plans to set
up a subsidiary, Rasna Beverages, for the production of higher-value beverages such as energy drinks,
fortified bottled water and fruit juices, in India. Coca-Cola India, as one of the most aggressive players in
the market, has been eager to hop on the innovation bandwagon as well and recently launched its range of
Minute Maid 100% juices.
Both Coca-Cola and PepsiCo are extremely optimistic about the Indian soft drinks market, with both
companies pledging significant investments in the region. Coca-Cola has reiterated its plans, first
announced in 2012, to invest US$5bn into its regional operations before 2020. Similarly, PepsiCo has
committed US$5.5bn to be invested into all forms of the company's Indian business by the end of 2020.
Such large sums of capital highlight the opportunity which exists within the sector, as well as a sign of
consolidation and production expansion for the future.
Table: Soft Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Carbonates
sales
(mn litres) 3,120.0 3,215.0 3,436.7 3,672.4 3,923.0 4,189.4 4,472.7 4,773.7
Fruit/ Vegetable
Juice drink
sales
(mn litres) 1,497.1 1,584.2 1,717.6 1,880.6 2,073.3 2,294.7 2,541.6 2,807.6
Bottled Water
sales
(mn litres) 1,116.5 1,186.6 1,278.6 1,393.2 1,529.7 1,686.6 1,860.6 2,046.1
Functional drink
sales
(mn litres) 786.4 856.9 942.4 1,050.0 1,178.4 1,321.1 1,476.8 1,644.8
RTD Tea/Coffee
sales
(mn litres) 57.5 60.4 63.3 67.2 71.9 77.3 83.1 89.0
Soft drinks sales

(mn litres) 6,515.8 6,908.0 7,309.8 7,795.1 8,354.4 8,976.9 9,654.9 10,366.7
Soft drink sales
growth, litres,
(y-o-y) 7.0 6.0 5.8 6.6 7.2 7.5 7.6 7.4
Carbonates
sales (INRmn) 78,110.2 88,964.6 103,100.0 119,066.7 136,096.0 153,696.6 171,471.0 190,331.4
Fruit/ Vegetable
Juice drink sales
(INRmn) 89,826.9 102,729.4 119,172.0 137,982.6 158,968.3 182,982.4 210,779.0 242,155.4
Bottled Water
sales (INRmn) 20,597.0 23,732.6 27,636.9 32,220.9 37,412.3 43,106.3 49,457.1 56,561.4
Functional drink
sales (INRmn) 62,908.3 74,086.4 87,187.4 102,720.1 120,473.2 140,458.1 163,295.6 189,151.4
RTD Tea/Coffee
sales (INRmn) 3,714.8 4,228.7 4,792.3 5,441.2 6,155.6 6,911.5 7,727.0 8,608.6
Soft Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018 - Continued
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Soft drinks sales
(INRmn) 255,157.2 293,741.5 341,888.6 397,431.6 459,105.4 527,154.9 602,729.8 686,808.2
Soft drink sales
growth, INR,
(y-o-y) 19.7 15.1 16.4 16.2 15.5 14.8 14.3 13.9
Carbonates
sales (US$mn) 1,673.4 1,665.3 1,747.5 2,052.9 2,402.8 2,700.0 2,997.3 3,310.4
Vegetable and
Fruit Juice drink
sales
(US$mn) 1,924.5 1,922.9 2,019.9 2,379.0 2,806.6 3,214.5 3,684.4 4,211.8
Bottled Water
sales (US$mn) 441.3 444.2 468.4 555.5 660.5 757.3 864.5 983.8
Functional drink
sales (US$mn) 1,347.7 1,386.8 1,477.8 1,771.0 2,127.0 2,467.4 2,854.4 3,289.9
RTD Tea/Coffee
sales (US$mn) 79.6 79.2 81.2 93.8 108.7 121.4 135.1 149.7
Soft drinks sales
(US$mn) 5,466.5 5,498.3 5,794.7 6,852.3 8,105.5 9,260.6 10,535.6 11,945.5
Mass Grocery Retail
Mass grocery retail 2014 sales growth (local currency) = +14.5%; compound annual growth rate
(CAGR) 2014 to 2018 = +12.2%.
Over the long term, India is one of the most exciting mass grocery retail (MGR) opportunities in the Asia
Pacific region. Indian consumers are still largely familiarising themselves with the concept of modern retail,
which accounts for less than 10% of overall grocery retail sales, according to BMI estimates. Nonetheless,
there are going to be tremendous opportunities for growth given the underdeveloped nature of the MGR
sector.
India's MGR sector remains dominated by small-scale traditional retail outlets. All four key modern formats
(supermarkets, hypermarkets, convenience and discount stores) are already present within India's MGR
market, but these stores are largely operated by a handful of local retailers, with the dominant ones being
Pantaloon Retail, Reliance Retail, Subhiksha and Big Bazaar.
The relatively slow pace of MGR growth in India can be largely attributed to two key factors: massive
income inequalities and tough foreign direct investment regulations. India's GDP per capita is forecast to be
around US$1,607 in 2014, which is somewhat low compared with that of China, for example. Given this
low purchasing power, Indian consumers have been relatively slow to adopt modern retailing methods.
As affluence in India rises steadily over the coming years, consumers are expected to increase their
spending and turn to modern retail formats in search of the convenience and quality that they now desire
and can increasingly afford, which in turn presents positive implications for MGR sales.
BMI believes that supermarket and hypermarket sales will outperform other store formats in MGR, with
sales in local currency terms growing by 58.3% and 66.3% respectively between 2014 and 2018. By 2018,
we forecast hypermarket sales to account for just under a third of total MGR sales. The sector will still be
dominated, however, by the supermarket format, which will continue to represent about half of all MGR
sales in India.
Table: MGR Sales By Format - Historical Data & Forecasts, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Supermarkets (INRbn) 629.9 734.9 845.6 976.8 1116.9 1254.7 1396.5 1546.0
Hypermarkets (INRbn) 374.0 445.9 511.5 589.5 674.1 767.7 871.3 980.6
Discount stores (INRbn) 147.3 163.2 178.6 197.4 218.2 240.9 265.2 290.3
Convenience stores (INRbn) 118.7 132.8 145.7 161.0 177.6 195.9 216.3 237.7
Total mass grocery retail sector (INRbn) 1269.9 1476.8 1681.4 1924.8 2186.8 2459.2 2749.3 3054.5
Total mass grocery retail sector growth, INR,
(y-o-y) 21.5 16.3 13.9 14.5 13.6 12.5 11.8 11.1
Supermarkets (US$bn) 13.5 13.8 14.3 16.8 19.7 22.0 24.4 26.9
Hypermarkets (US$bn) 8.0 8.3 8.7 10.2 11.9 13.5 15.2 17.1
Discount stores (US$bn) 3.2 3.1 3.0 3.4 3.9 4.2 4.6 5.0
Convenience stores (US$bn) 2.5 2.5 2.5 2.8 3.1 3.4 3.8 4.1
Total mass grocery retail sector
(US$bn) 27.2 27.6 28.5 33.2 38.6 43.2 48.1 53.1
Trade
Exports growth (US$) for 2014 = +12.0%; compound annual growth rate (CAGR) forecast 2014 to 2018
= +12.2%.
Imports growth (US$) for 2014 = +10.8%; CAGR forecast 2014 to 2018 = +11.2%.
BMI expects that India's food and drink trade balance will grow increasingly positive over the forecast
period as the government continues to prioritise the agricultural industry and actively seeks investment in
this sector. India benefits from its immense landmass and is a major producer of several key agricultural
commodities, including tea and milk.
Despite these advantages, a number of major challenges remain, including underdeveloped production,
harvesting and storage infrastructure. Nevertheless, we are forecasting a CAGR of 12.2% in food exports, in
US dollar terms, between 2014 and 2018, to reach a value of US$36.0n. BMI also expects the demand for
imported food products in the country to remain strong over the forecast period, growing by a CAGR of
11.2% to reach US$19.6bn in 2018. Demand among a population with rising purchasing power will
contribute to the need for more foreign-sourced products. In particular, Westernised consumption habits and
the need for ingredients that are not widely produced on a local level will stimulate imports.
India possesses a very positive food and drink trade balance given its natural resources. Crucially, we see
the country increasingly taking advantage of its endowments and increasing this trade balance across our
forecast period, from US$9.9bn in 2014, to US$16.4bn in 2018.
Table: Food & Drink Trade Indicators - Historical Data & Forecasts, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Exports (US$mn) 18,538.2 18,389.6 20,362.0 22,796.6 25,615.3 28,699.1 32,198.5 36,034.3
Imports (US$mn) 10,883.5 10,931.3 11,596.9 12,851.7 14,352.8 15,995.6 17,785.3 19,641.4
Balance (US$mn) 7,654.7 7,458.3 8,765.1 9,944.9 11,262.5 12,703.6 14,413.2 16,393.0
e/f = BMI estimate/forecast. Source: UNCTAD, BMI
Macroeconomic Forecast
Economic Analysis
BMI View: India's painful process of external rebalancing is almost complete, and this will set the stage for
an economic growth revival in FY2014/15 (April-March). The pace of recovery will depend on the timing of
monetary easing, as well as a decisive and business-friendly outcome to the 2014 general elections. We are
optimistic on both these fronts and expect investment activity to pick up materially over the course of the
year. Our constructive outlook is reflected in our real GDP growth forecast of 5.6%, which sits above
consensus expectations of 5.4%.
Stage one of India's macroeconomic rehabilitation - the painful process of external rebalancing - is
almost complete. Admittedly, this has taken longer than we had previously anticipated. However, with the
country's current account shortfall narrowing to just 1.2% of GDP in Q313 - a rapid turnaround from the
6.5% deficit that spooked investors just two quarters earlier - India can no longer be described as externally
vulnerable either cyclically or structurally. Monetary tightening and currency depreciation, coupled with the
added bonus of rejuvenated EU import demand, have all helped to put India's external position back onto
the straight and narrow, which bodes well for the country's medium-term macroeconomic prospects.
A Major Improvement
India - Current Account Balance, US$bn & % of GDP
Source: BMI, RBI
External rebalancing is a necessary but not sufficient condition for India to recover from its multi-year
economic slumber, however. In this respect, 'stage two' of the process will require the establishment of a
favourable business environment to help re-ignite investment activity. Two factors stand out on this
front. The first is a reversal in monetary policy. Having taken the helm in September 2012, Reserve Bank of
India (RBI) Chairman Raghuram Rajan enacted tighter monetary policy overnight in order to bring some
stability to the Indian rupee and money markets. With the currency having regained poise, the trade shortfall
narrowing quickly, and inflationary pressures (for the most part) starting to settle down, we believe that
Rajan will turn his attention to growth concerns as early as Q1 FY2014/15 (April-June). Quick-fire interest
rate cuts would clearly be a welcome development for corporate India, and we see at least 50 basis points in
short order next fiscal year.
From Hawks To Doves
India - Benchmark Repo Rate, %
Source: BMI, RBI
The second factor is the potential for a decisive and business-friendly outcome to India's general elections,
which are constitutionally due to be held by May 2014. While there is still a high degree of uncertainty over
the end results, we are leaning towards a victory for the opposition (and more market-friendly) Bharatiya
Janata Party (BJP). After the disappointment of the ruling United Progressive Alliance (UPA)'s second term
in office, this scenario would be looked upon kindly by investors. To this end, the BJP has made significant
ground in state elections held in December (including Delhi), meaning that the party will head into the 2014
campaign very much on the front foot.
Lower borrowing costs, an improving political risk profile, and the potential for economic reform will
encourage Indian companies to build out capacity and foreign investors to seek out new investment
opportunities in 2014. This process will be enhanced by recent efforts to get infrastructure activity moving
once more. The Cabinet Committee on Investments (CCI), formed 10 months ago to kick start project
approvals, has already cleared investment proposals worth INR3.7trn (worth roughly 4% of nominal GDP).
We expect gross fixed investment to clock real growth of 6.5% in FY2014/15, which would mark the fastest
pace of expansion in four years. This constructive outlook for investment is reflected in our real GDP
growth forecast of 5.6%, which sits above consensus expectations of 5.4%.
The Recovery Begins In 2014
India - Real GDP Growth, %
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
f
2
0
1
4
f
2
0
1
5
f
0
2.5
5
7.5
10

Notes:
1
Base Year = 2004/05 (growth data before 2004 uses 1999/00)
1
"Central Statistics Organisation/BMI"
India's financial markets appear to agree with us also, with both the fixed income and equity markets
starting to price in a turnaround in economic fortunes in FY2014/14. India's 2s-10s sovereign debt
spread, a useful guide to future monetary conditions and economic activity, has normalised (see chart),
which bodes well for banking sector profits and an upswing in the business cycle. Meanwhile, the Bombay
Stock Exchange Capital Goods Index is painting an increasingly positive picture. The performance of
capital goods equities has been a useful leading indicator in the past for India's broader investment story
and, with this in mind, the 50% surge seen since late August 2012 augurs well.
Positive Market Signals
India - 2s-10s Spread & BSE Capital Goods Index
Source: BMI
Risks To Outlook
The stage is set for India's economy to make a comeback, but we stress that significant challenges continue
to lie in wait. Externally, India is less exposed to China than most, which is a positive versus the rest of the
region. However, it is tied to the eurozone economy and any relapse in the currency bloc would pose
downside commercial and financial risks to India.
The greatest challenges arguably come from within. Firstly, India's public finances remain a precarious
position (see 'Another Year Of Fiscal Disappointment', November 13), meaning that fiscal consolidation
will have to be addressed in 2014 to stave off the threat of a ratings downgrade. While such a scenario
would be near-term negative for growth, it would help to further anchor inflation expectations and allow
monetary easing to take place faster and with more aggression. Failure to put the fiscal house back in order,
therefore, is a key risk. Secondly, we noted recently (see ' Election Scenarios: The Good, The Bad, And The
Ugly', December 4), India's elections could yet throw up some surprises. The worst case scenario of a 'Third
Front' coalition made of smaller, regional parties each with their own distinctive provincial priorities would
dash any reform hopes and further retard the country's investment recovery.
Table: India - Economic Activity

2009 2010 2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Nominal GDP,
INRbn
1,6
61,089 72,670 83,535 94,610 105,808 118,105 131,077 145,217 161,039 178,530
Nominal GDP,
US$bn
2,6
1,293 1,596 1,835 2,078 1,793 2,036 2,314 2,551 2,815 3,105
Real GDP
growth, % y-
o-y
3,6
8.6 9.3 6.2 5 5 5.6 6.2 6.5 6.6 6.6
GDP per
capita, US$
6
1,087 1,324 1,503 1,680 1,432 1,607 1,805 1,967 2,146 2,342
Population,
mn
7
1,190 1,206 1,221 1,237 1,252 1,267 1,282 1,297 1,312 1,326
Industrial
production, %
y-o-y, ave
4,6
5.3 8.3 3.1 1.2 3.5 5 7.2 8 7.5 7
Unemployme
nt, % of
labour force,
eop
5,8
10.7 10.8 8 10.5 10.5 9.5 8 8 8 8
Notes:
e
BMI estimates.
f
BMI forecasts.
1
GDP @ Factor Cost, Fiscal years ending March 31 (1990=1990/91);
2
2011=FY2011/12, GDP @ Factor Cost, f=BMI forecast;
3
2011=FY2011/12, Factor Cost, f=BMI forecast;
4
New series
used from 2005/06 onwards;
5
No official time series data on Indian unemployment; CIA Factbook offers best alternative
proxy. National Sample Survey Organization (NSSO) also calculates unemployment rate, but surveys conducted every 5
years. Labour bureau published first employment su. Sources:
6
Central Statistics Organisation/BMI;
7
World Bank/UN/
BMI;
8
CIA World Factbook.
Industry Risk Reward Ratings
Asia Pacific Risk/Reward Ratings
BMI's Food & Drink Risk/Reward Ratings assess a market's attractiveness to industry investors in
comparison with its peers. The reward part of the rating takes into account market size, current consumption
levels, future industry growth prospects (based on our five-year industry forecasts), market fragmentation
(with greater fragmentation indicating higher opportunities) and the size of the youth population.
Meanwhile, the risk part of the rating takes into account the legislative environment, the level of
development of the organised retail sector (with higher development leading to lower risks), as well as
relevant aspects of the economic and political environment.
Japan holds onto its leading position in our Food & Drink Risk/Reward Ratings for Asia Pacific in Q214,
while China moves up our rankings, regaining its second place from South Korea. As markets across the
region continue to pursue economic growth and stability, the gap between the highest performers and those
languishing at the bottom remains wide, pointing to the continued challenges facing Pakistan, Malaysia and
the Philippines in particular.
Unlike in more developed markets, there remain ample opportunities for countries in the Asia Pacific region
to build upon strong reward profiles. However, given the dominance of more developed Asian players, there
remain significant obstacles ahead for less developed countries. Japan retains the excellent risk score
achieved in previous quarters, which continues to secure its leading position in our rankings. Though other
countries, including Australia, South Korea and Singapore, possess similarly strong risk scores, the size of
Japan's population and high average incomes result in a higher reward rating.
While our ratings do favour countries with stronger growth outlooks (with the reward portion carrying a
60% weight), the fact that countries with the five best risk profiles make up the top six of our rankings
illustrates the nuanced nature of our ratings as a comparative tool. Though the appeal of sizeable markets
such as Indonesia and India remains alluring, sizeable operating risks are present which must be considered.
Table: Asia Pacific Food & Drink Risk/Reward Ratings Q214
Reward
Industry
Reward
Country
Reward Risk
Industry
Risk
Country
Risk
Food & Drink
Rating Ranking
Japan 46.3 32 60.7 77.3 80 74.5 58.7 1
China 58.3 62 54.7 57.8 55 60.7 58.1 2
Australia 42.2 32 52.3 75.7 75 76.3 55.6 3
South Korea 41.3 42 40.7 76.0 80 71.9 55.2 4
Singapore 35.7 30 41.3 84.0 80 88.0 55.0 5
Hong Kong 38.8 40 37.7 75.2 75 75.4 53.4 6
Indonesia 62.2 64 60.3 39.5 25 53.9 53.1 7
Vietnam 55.0 68 42.0 45.6 30 61.2 51.2 8
Thailand 49.7 62 37.3 53.1 40 66.2 51.0 9
India 59.0 54 64.0 38.3 20 56.7 50.7 10
Taiwan 40.3 40 40.7 63.5 50 76.9 49.6 11
Philippines 51.2 42 60.3 45.3 30 60.6 48.8 12
Pakistan 60.2 60 60.3 29.8 10 49.6 48.0 13
Malaysia 43.2 40 46.3 53.9 40 67.8 47.5 14
Scores out of 100, with 100 highest. The Food & Drink Risk/Reward Rating is the principal rating. It comprises two sub-
ratings, 'reward' and 'risk', which have a 60% and 40% weighting respectively. In turn, the 'reward' rating comprises
'industry reward' and 'country reward', which have equal weighting and are based upon growth/size of food/alcohol and
soft drinks industry (market) and the broader economic/socio-demographic environment (country). The 'risk' rating
comprises 'industry risk' and 'country risk', which both have 20% weightings respectively and are based on a subjective
evaluation of industry regulatory and competitive issues (market) and the industry's broader country risk exposure
(country), which is based on BMI's proprietary Country Risk Ratings. Source: BMI.
The six factors that make up the reward score in our ratings are: food consumption per capita, market
fragmentation, per capita food consumption (five-year compound annual growth), population size, GDP per
capita, and youth population.
The first indicator, food consumption per capita, reflects the existing spending power of the Japanese
consumer (the country scores 10 out of 10 on this metric), with South Korea, Australia, Singapore, Hong
Kong and Taiwan also achieving high scores. Although these countries show high levels of spending, the
performance of other countries is markedly different, pointing to a clear division between regional peers.
China, for example, scores only 5, indicating scope for income growth. India, Pakistan and Vietnam each
have the lowest score of 1, highlighting even more potential for acceleration despite the current low reward
marking.
Our second indicator, market fragmentation, assesses how relatively developed (less fragmented) or
underdeveloped (more fragmented) a market is. Whereas the first indicator confers strong scores for high
existing spending, the second indicator rewards countries where the long-term scope for growth is the
greatest. These are typically markets where there is significant room for growth, innovation and
development. Unsurprisingly, Japan, with a highly developed, saturated mass grocery retail (MGR) sector,
is comfortably outscored by India, China and almost all the emerging markets rated.
The third indicator within the reward breakdown of our ratings system is per capita food consumption
growth (five-year compound annual growth). Paired with market fragmentation, this is the joint highest
weighted indicator within our reward score framework. Since our ratings are designed to be forward-
looking, this indicator is one of the main ways we gauge growth and, in combination with some of the other
high-weight indicators we look at, informs our preferences for certain markets. Despite lower scores than in
previous quarters, countries such as China, India and Vietnam outscore Japan and Australia, demonstrating
the future promise of these Asian markets in challenging Japan's lead. One notable high scorer is South
Korea, which is forecast to increase per capita food consumption at a similar rate to many emerging
markets. Such growth could see the country move higher up the rankings in the near future.
Population size is the fourth indicator, and China and India unsurprisingly score well, as does Japan, with
its population of nearly 130mn. Paired with our fifth indicator, GDP per capita, large populations and
strong spending power have reinforced Japan's continued dominance in our ratings this quarter. Though
Singapore possesses one of the highest per capita income expenditures and a very good risk score, the
limited size of the market means that the country loses ground on this metric.
The final reward indicator, youth population, was introduced as a way to factor in a more comprehensive
demographic angle to our ratings. Here, Pakistan, Vietnam and the Philippines stand out, with high scores
rewarding the growth potential associated with young populations and poor scores for Japan and Australia
pointing to the restraints that can be presented by ageing populations.
The seven factors that make up the risk score are: mass grocery retail (MGR) penetration, regulatory
environment, short-term economic risk rating, income distribution, lack of bureaucracy, market orientation,
and physical infrastructure.
Our first risk indicator is MGR penetration, which assesses how relatively developed the overall consumer
sector is. Very low MGR scores reflect the ongoing predominance of informal retail, comprised of kiosks
and markets with weak centralised distribution mechanisms. Many of the more mature and developed
markets score well here, including Australia, Singapore and Japan. India, which has very recently initiated
efforts to open up its food retailing sector to multinationals, scores very poorly (1/10). Conversely, China is
much further along in the development of organised retailing channels when compared with other low
scorers such as Vietnam and Malaysia.
The second factor, regulatory environment, evaluates the complexity of things such as labelling and
nutrition requirements. It also can be used to gauge the state of the overall business environment. The more
developed and mature markets usually score better here, and that is once again the case in Q214, with
Pakistan, India and Vietnam scoring poorly, highlighting persisting food regulatory hurdles, particularly for
non-domestic producers. Notably, however, China and the Philippines score fairly impressively in this
metric, hinting that future growth will be encouraged by both of these countries' strong regulatory
environments.
The third factor, short-term economic risk rating, assesses the degree to which the country approximates
the ideal of non-inflationary growth with falling unemployment, contained fiscal and external deficits and
manageable debt ratios. It is principally the candidates towards the top of our ratings that do well on this
criterion, underlining the link between economic stability and the overall attractiveness of the consumer
market. Pakistan's position as the lowest scorer across the region points to continued investor concern, with
its score failing to increase over recent quarters. Again, South Korea posts a very favourable rating here.
The fourth factor, income distribution, is measured by the proportion of private consumption accounted for
by the middle 60% of earners. Unsurprisingly, countries such as Japan, Singapore and South Korea lead the
pack, though developing markets also score relatively well in this regard.
Lack of bureaucracy, our fifth indicator, is a measure of the hurdles that any producer is likely to face in
areas such as starting and closing businesses, paying taxes, dealing with licences and registering property.
Here India continues to score poorly, with its draconian bureaucracy highlighted in the press regarding
multinational grocery retailers. This is paired with our sixth factor, market orientation, which measures
how business-orientated an economy is and measures the level of foreign direct investment protectionism,
tax rates and the level of government intervention. Another low score for India points to the continued
difficulties facing investors looking to enter this market in particular.
Our final risk factor, physical infrastructure, measures the ease and cost of operating in a market from an
infrastructure perspective. Some of our favourite regional economies have a lot of work to do here, with the
reward profiles of high-growth markets such as China and Indonesia facing poor scores. Paired with factors
such as market orientation, regulatory environment and MGR penetration, countries will have to perform
well here if they are to challenge the continuing ratings dominance of Japan.
Table: Asia Pacific Food & Drink Risk/Reward Sub-Factor Ratings Q214 (scores out of 10)
Reward Japan China South Korea India Philippines
Food consumption per capita 10 5 9 1 3
Market fragmentation 1 8 2 9 5
Per capita food consumption, five-year compound
annual growth 2 5 4 4 4
Population size 8 10 5 10 7
GDP per capita, US$ 9 4 7 2 2
Youth population, % 2 2 1 6 8
Risk

MGR penetration 9 5 8 1 1
Regulatory environment 7 6 8 3 5
Short-term economic risk rating 7 9 9 6 7
Income distribution 9 7 9 7 7
Lack of bureaucracy 8 5 5 4 4
Market orientation 6 4 6 4 6
Physical infrastructure 8 5 7 7 6
Source: BMI
India Food & Drink Risk/Reward Ratings
India's massive domestic demand potential warrants its reputation as one of the most exciting consumer
plays in the region, though is ranked 10th out of 14 countries included in BMI's Q214 Food & Drink Risk/
Reward Ratings for Asia Pacific. The country has an impressive rewards score of 59.0, rating it above
China and Indonesia on this metric. However, this potential remains difficult to exploit, particularly for
foreign consumer goods investors, with market challenges such as poor infrastructure and restrictive
regulations dampening India's overall investment attractiveness.
The immaturity of India's consumer-facing sectors, favourable demographics and sturdy long-term outlook
are major pluses for foreign consumer goods investors operating in India. The relatively undeveloped and
immature nature of the Indian food and drink industry means that foreign investors are likely to face fewer
competitive headwinds when expanding their presence in the country.
A restrictive regulatory climate is one of the major hurdles faced by foreign consumer players. In September
2012, India finally opened up its retail industry to foreign investors. The new legislation has been met very
favourably by the pro-business lobby, which had grown frustrated at how long it had taken India to pass this
legislation. In August 2013, the Indian government further relaxed its foreign investment mandate, giving
foreign retailers five years to source 30% of their products from domestic firms, instead of requiring this
immediately as before. Though foreign investment in India has grown by leaps and bounds in the last few
years, strict controls remain. In October 2013, the world's largest grocery retailer Walmart dissolved its
partnership with Indian firm Bharti Enterprises, partly as a result of these tight controls.
Poor distribution infrastructure is another major issue of concern. Poor roads, ports and railways are
commonly viewed as a key factor preventing the country from achieving the high growth rates seen in
China and other East Asian nations. This is further compounded by the lack of a formal food retailing
sector, frustrating retailers' efforts to distribute their products to the end-consumer market.
Market Overview
Food
Food Processing
The problems hindering India's agricultural industry have a knock-on effect on its food-processing industry,
reducing supplies and driving up ingredient costs. Nevertheless, India's food-processing industry remains
enormously attractive owing to an abundance of natural resources, an extensive workforce and a population
that can help sustain industry development.
Some of the more prominent players in the sector include Hindustan Unilever Ltd (HUL), India's largest
fast-moving consumer goods manufacturer, which is majority-owned by Dutch company Unilever. A dual-
pronged business strategy that sees the firm, like its Dutch parent, aggressively market and promote its
brands, at the same time as investing heavily in distribution opportunities has resulted in HUL becoming
India's branded tea, detergent and soap market leader.
Over the coming years, investment into the Indian food processing sectors is expected to rise. Banana and
vegetable producer Desai Fruits and Vegetables has announced plans to invest in its Navsari facility near
Gujarat. The company is planning upgrades to its refrigeration facilities and packaging operations as
European and US demand for its fruits increases. In 2012 Indian food subsidiary Nestl India built its
eighth production plant in India at a site near Ahmedabad, Gujurat, investing INR5bn (US$94.5mn). The
plant produces Maggi noodles from locally sourced wheat, as well as confectionery.
Multinational beverage firms PepsiCo and The Coca- Cola Company (Coca-Cola) have both recently
announced significant investments into the region. PepsiCo will invest US$5.5bn into all forms of its Indian
business by 2020, concentrating on improving vertical integration within the company. Coca-Cola will add
to the US$4bn programme it is already involved in, planning to invest another US$4bn between 2015 and
2017.
Food Consumption
On average Indians spend around half of their income on food, and the majority of purchased goods are
basic items such as grain, pulses, vegetable oils and sugar. Only a small amount is spent on processed food,
although this is increasing in line with the country's economic development. As disposable incomes rise,
particularly in urban areas, higher-value products such as milk, meat and eggs are becoming more popular.
Despite this, consumer preferences for fresh products, as well as for local spices and ingredients, remain
strong. These traditional consumer patterns have mitigated sales of processed foods through multinational
operators. However, manufacturers are becoming increasingly aware of the need to tailor their product
offerings to the local market and are acting accordingly.
Overall consumption of poultry stood at an estimated 2,784,000 tonnes in 2011. This is expected to continue
growing aided by increased domestic production, particularly at the mass-market rather than small-scale
level. This has driven down prices and encouraged wider consumer participation. Poultry sales are further
boosted by the cultural and religious avoidance of red meat among large sections of the population and the
low availability of fish outside of major coastal areas. Per capita processed poultry consumption might
remain at relatively low levels - restricted by price and the lack of household cold-storage facilities - but it is
still estimated to be growing at 10-15% per year. Strong economic growth and an ever-increasing middle
class have increased the affordability of processed meat while also dramatically boosting demand thanks to
an ongoing desire for convenience.
Confectionery
India's confectionery market is becoming increasingly competitive, especially as raw ingredients, including
sugar, milk and cocoa, can be sourced locally. Currently, India's chocolate industry is dominated by low-
cost, economy brands. More recent entrants, such as Swiss company Barry Callebaut, will have to contend
with competition from industry giants Cadbury, Nestl and Hershey, and local majors such as Balaji
Wafers and Parle Products.
Cadbury is the market leader, with an estimated share of around 32% of the confectionery market and 58%
of the chocolate market. American food firm Kraft Foods had long been keen to launch its chocolate and
biscuit brands in the country, independently or via a joint venture, but had been unable to find a partner that
would give it the instant scale and distribution network required to achieve success in this vast industry.
Following Kraft's agreed takeover of Cadbury the US firm now has a major foothold in the local market,
having secured a wide-reaching distribution network that caters to the uniqueness of India by penetrating
the country's hundreds of thousands of independent retail outlets. Furthermore, Kraft will benefit from
Cadbury's upstream investments and the progress it has made in improving domestic cocoa output, thus
improving the security and cost-effectiveness of its supply chain.
Other key players include American firm Hershey, which recently entered India via the US$60mn
acquisition of a stake in Godrej Beverages & Foods, subsequently renamed Godrej Hershey Foods and
Beverages. Partnering with Godrej will allow Hershey to benefit from the local company's distribution
network, a major advantage in such a massive market with a highly fragmented retail sector.
Mondelez International is to build the largest chocolate manufacturing plant in India as part of its
emerging markets investment strategy. The American firm, which spun off from Kraft Foods in 2012,
plans to invest US$190mn in south-east India to erect the company's largest plant in the Asia Pacific region.
The plant will have an annual capacity of 250,000 tonnes and is part of Mondelez's ongoing supply chain
reinvention plan.
Following calls from activist shareholders for Mondelez to increase its profitability, the company
announced in September 2012 plans to redesign its supply chain, with the aim of saving almost US$1bn by
2015. This latest investment comes on top of US$200mn that has been pumped into the company's Indian
operations since 2010, with Mondelez looking to become more involved in all stages of production within
its Indian operations.
Mondelez's announcement demonstrates the company's desire to continue growing its emerging market
exposure. In FY2012, 44.7% of the company's total revenue came from developing markets, compared with
just 25.5% in FY2010. The Indian confectionery market is one of the fastest growing and most dynamic
globally, and offers great opportunities to those involved. Mondelez's greater involvement in the supply
chain, however, also gives an indication of the wider problems that India will face in the immediate future.
What has interested observers of late has been the pace at which speciality and innovative imported
chocolate products have found a receptive audience. Local manufacturers, often subsidiaries of the brand
parents of these imports, are struggling to keep pace. The market leaders have focused on expanding the
existing audience size for mass-market confectionery products. Currently, chocolate consumption is focused
on a small number of major urban centres, and Cadbury and its peers have sought to expand their footprint
in secondary and tertiary towns and cities while persuading established urban consumers to purchase
chocolate more regularly, rather than regarding it as a very occasional treat.
Although these strategies have been successful in focusing on the mass market, producers have failed to
exploit booming growth at the premium end of the industry. This has allowed imported brands - attractive to
aspirational consumers because of their perceived quality and novelty - to make slow but steady inroads into
the market or domestically produced products.
The local biscuit market is very competitive, dominated by domestic players with huge distribution
networks which have focused their product development drives on the economy and mainstream end of the
market. Biscuits have long been perceived as an affordable everyday snack; however, considerable growth
will come from steady premiumisation as higher-value products, made using better quality ingredients and
perhaps offering health advantages, are introduced to the market. Britannia Industries is the market leader in
the domestic biscuits sector, holding around 36% of the total, while continuing to invest in capacity
expansions. It plans to invest around INR1bn (US$22.0mn) to set up manufacturing plants in Bihar and
Orissa states.
Meanwhile, Indian confectionery giant Parle Products aims to build on its recent success and capture a 25%
market share in the snacks segment in the coming year. Parle also intends to increase its market share by 1%
in both the biscuit and confectionery segments; it currently has a 17% market share in the latter.
Canned Food
While accounting for a modest proportion of the total food market, canned foods are expected to benefit
from rising disposable incomes, urbanisation and logistical improvements across India.
Trade
India is a net exporter of agricultural products, and the government is committed to improving food trade.
Dairy represents a sector with huge potential for export growth. India is the largest producer of milk in the
world, though consumes a great deal of this. However, as demand for milk across Asia Pacific continues to
rise at a great pace, India sits in an excellent geographical position to take advantage. As such, we believe
Indian dairy firms will ramp up production to try to increase exports.
Agriculture
India's food industry benefits from the country's diverse agro-industrial base. Local and multinational
companies are present in this immense market, yet there is still huge untapped potential. The country is a
major producer of rice; wheat; liquid milk; poultry products; fruit and vegetables; coconut; tea; spices;
marine and freshwater products, including fish and shrimp; and a large variety of other produce.
The country's vast geography, potential agricultural output and huge population have seen it attract vast
foreign direct investment inflows into its agricultural sector in recent years, and the country's recent
improvements in terms of agricultural output reflect this. Greater efficiency, owing to local and
international investment, has improved both the yield and the quality of India's agricultural production,
which has in turn increased its presence in export markets.
The country's processed-food industry is relatively undeveloped when compared with other countries in the
region. It remains focused on less profitable primary agricultural output, with more recent added-value
agricultural trends, such as organic food production, still largely ignored by most farmers. Furthermore, the
growth of the agricultural industry has been hampered in recent years by loss of harvests owing to improper
handling and storage, pest infestations and logistical and distribution problems.
Rice
Basmati is one of the world's most expensive rice variants, and its enormous global value rendered it
immune from inflation-controlling export bans introduced in 2008. However, producers of rice variants,
such as Pusa1121 and CSR30, which have evolved from basmati brands but no longer have classification,
have missed out on this development. The new parameters under discussion would enable their inclusion in
addition to the 11 basmati varieties already recognised.
In boosting India's rice export potential by a significant 3-4%, observers have expressed concern about the
availability and price stability of domestic supplies. Rice is India's most important foodstuff, with demand
increasing by an average of 2% annually since 1998. However, producers of these once-excluded variants
have claimed that this is a debatable point. They claim that this rice is of such a quality that it is only
suitable for India's wealthy lite, or the export market, and has no bearing on the affordability or supply of
food for the country's poor. This view is further supported by the impact that improved export opportunities
could have on India's farming economy, traditionally an employer to its poorest groups.
The rice industry accounts for approximately 60% of employment in India, both directly and indirectly, and
exports of premium rice variants are seen as essential for creating a sustainable future for the estimated two-
thirds of the country's population that live in rural, farming areas. The flipside of this is the effect that
opening itself up to increased competition could have on the rural economy. New Delhi will have to retain
strict quality and geographical indication control if it is to avoid diluting the basmati brand. If the easing of
classification allows any room for new participants from international markets interest can be expected to be
immense, given the potential profitability of the foodstuff in question.
Dairy
India is both the largest consumer and producer of milk in the world, while also having one of the largest
per capita consumption rates, at about 40kg per year. Half a century ago, India was the largest net importer
of milk in the world, but a drive spearheaded by Amul Dairy, dubbed the 'white revolution', has made India
self-sufficient in its dairy requirements.
Expansion in the Indian dairy industry has been mainly led by private investors and cooperatives. Along
with the rise of artificial insemination services, herd numbers are boosted consistently. Given the ubiquity
of cattle in India, milk forms a vital dietary component, especially since most rural inhabitants own at least
one cow. Buffalo are preferred for their high milk fat content and their adaptability to Indian agricultural
conditions. In fact, according to the National Dairy Development Board, consumer demand for milk and
milk products is growing at approximately double the growth rate of production. As a result, strong dairy
demand continues to fuel herd growth, and has also paved the way for improved management practices.
We believe that these gains will be fuelled by per capita income and population growth, which will lead to
greater demand for high-value dairy products, such as cottage cheese and yoghurt, and higher per capita
consumption of milk. Another growth driver will be targeted marketing campaigns from large
multinationals such as Carrefour and Walmart seeking to establish their presence in the consumer foods
market.
India's dairy market size in value terms, including the organised and unorganised sector, is estimated at US
$47.6bn, and has been growing at nearly 7.5% annually. Presently, the country is still largely able to meet
its domestic demand and is only marginally dependent on dairy imports.
India's growing middle class and rising wages at lower income levels is leading to strong domestic
consumption growth in the dairy sector. Reports suggest that the double-digit growth in demand for value-
added dairy products, such as cheese, dahi (Indian yoghurt) and probiotic drinks, is quickly outpacing that
of dairy production in India, which we forecast to expand at an average rate of 4.4% per annum to 2018.
These dynamics reinforce our core view that the Indian milk sector must significantly increase production
capacity in order to keep pace with rapid consumption. The dairy sector should improve yields and
efficiencies through consolidation. Though the country can boast a dairy herd of 120mn cattle, the average
output of an Indian cow is only one-seventh of its American counterpart. Already, both the private and
public sectors are working towards this end. In 2010, the government, together with the National Dairy
Development Board, drew up a National Dairy Plan, which would see the investment of US$378mn aimed
at doubling the country's milk output by 2020.
India has an insignificant share of the global dairy trade, less than 1%, despite being a leading producer of
milk. Most of the packed liquid-milk segment in India is dominated by the cooperatives. The liquid milk
contribution to total revenues of dairy cooperatives ranges from around 60% to 80%. Private players,
barring a few exceptions, are mainly focused on milk products other than packed liquid milk. However,
there is huge potential for processing and value addition in the organised sector, particularly in ethnic Indian
sweets, which are largely sold in unbranded form at markets. Indeed, major industry players such as
Reliance, DCM, Bharti, ITC and Yakult-Danone are already present in India.
Meanwhile, other leading firms continue to announce new investments in the sector in order to capitalise on
the strong forecast growth. Nestl announced in October 2010 that it is investing INR2.5bn (US$56mn) in a
new plant in India. Fonterra and the Indian Farmers Fertiliser Cooperative are also reportedly in talks to
establish a dairy farming joint venture. However, even with these investments, yield growth is still slow. A
major contributing factor is poor fodder quality. The Indian Dairy Association estimates that fodder prices
have risen by more than 50% over 2011-2012, placing it increasingly out of the reach of poor Indian
farmers, which make up roughly 70% of the dairy sector. On the other hand, retail prices of milk have only
risen by between 13% and 15%
Drink
Soft Drinks
India's soft drinks sector is dominated by major multinational players The Coca-Cola Company and
PepsiCo. The companies have been expanding beyond their traditional carbonates base and have entered
the healthy and energy drink sectors within the country, which they also have been doing on a global scale.
Coca-Cola has invested more than US$1bn in India since it returned to the country in 1993, and has pledged
to invest a further US$5bn between 2012 and 2020. In November 2008, PepsiCo announced a three-year US
$500mn investment plan for India, with a view towards trebling its revenues in the country. This was
followed a year later by an announcement that it would invest a further US$200mn into its Indian
operations, with a further US$500mn earmarked for new bottling plants. In November 2013, PepsiCo
announced plans to invest US$5.5bn across all forms of its Indian business by the end of 2020. PepsiCo will
use the capital to increase its vertical integration, from the initial source of agriculture down to distribution
and marketing. Such investments from PepsiCo and Coca-Cola demonstrate the opportunities that are
present in India, yet also highlight the poor infrastructure that plagues the Indian economy and hinders
subsequent foreign investment.
In a further bid to lift its emerging market footprint and improve its ability to compete with Coca-Cola,
PepsiCo announced in April 2010 that it is to form a soft drinks joint venture with local firm Tata Tea.
PepsiCo will benefit from its involvement with Tata; the company gives it access to a vast distribution
network, a strong local brand name and all-important local market knowledge. In 2011, PepsiCo announced
plans to build a plant at Sankrail near Kolkata, India, with an investment of approximately INR1.7bn (US
$36.8mn). The company aims to expand its product portfolio of health and nutritious food and has already
made an investment of about INR4.5bn (US$97.4mn) in the region. PepsiCo and Tata plan to ramp up the
product portfolio of functional beverages through their local joint venture NourishCo. According to Tata
Global Beverages vice-chairman RK Krishna Kumar, NourishCo will be introducing a new range of
functional drinks and aims to generate overall revenues of INR7bn (US$141.8mn).
In our view, functional drinks, fruit and vegetable drinks and bottled water will outperform the soft drinks
market. Swiss food group Nestl is planning to push its Nestea iced tea across India as it looks to benefit
from this trend. Similarly, looking to bank on India's functional beverage potential, Coca-Cola India plans
to form an independent business division to lift its market share in the non-carbonated drinks sector. The
independent business unit will target innovation, sale and distribution of juices, energy drinks, power drinks
as well niche products such as mixers. Indian soft drinks producer Rasna is launching a new, independent
subsidiary, Rasna Beverages, to produce, distribute and market ready-to-drink beverages, including energy
drinks, fortified water and premium juices in collaboration with global firms. The company is also planning
to construct a greenfield plant in either Gujarat or Maharashtra, with an investment of INR500mn-600mn
(US$9.6mn-11.5mn), which will be raised internally.
Having said that, carbonated soft drinks continue to account for the majority of soft drink sales in India,
both in volume and value terms. As multinational players such as PepsiCo and Coca-Cola continue to
invest, the carbonated soft drinks sector in the country is expected to grow at a rapid pace.
In 2014 Nestl said that it had accepted it has ignored the market of affluent Indian consumers and focussed
more on those consumers spending pocket change on sweets and noodles. The company pursued the mass
market, overlooking the emerging affluent segment, said Nestl's head of emerging markets business Nandu
Nandkishore. Following this, the company will now be redrawing its strategy as a result of depreciating
local currencies, decreased economic growth, input costs affected by inflation and increasing competition.
Hot Drinks
The hot drinks sector in India is dominated by tea in terms of volume. In 2012, volume sales of tea reached
an estimated 0.8kg per capita, while coffee sales stood at just 0.09kg. We do, however, forecast strong
growth in both products, with per capita volume sales of coffee expected to grow by 25.2% between 2014
and 2017, and per capita volume sales of tea predicted to grow by 15.3% in the same period.
As a caf culture is being established in the main urban centres, the Indian coffee sector is fast developing.
Domestic company Caf Coffee Day is one of the leading players, with a large and still-growing store
network. Coffee Day also benefits from its highly integrated operations, having started out as coffee
plantation owners, giving it major efficiency and cost control synergies throughout its supply chain. The
company, which has 1,185 outlets, is currently planning to add about 815 new outlets in the next three-and-
a-half years. Other major players include Barista Coffee, owned by Italy's Lavazza, and UK-owned Costa
Coffee. Both Costa Coffee and Lavazza intends to expand further into the Indian market with its Barista
coffee chain, and triple its revenue within three years. Lavazza also intends to build 50-100 further new
outlets to add to the 160 outlets it currently has.
The most noteworthy foreign investment is perhaps that of Starbucks, which has a 50:50 joint venture with
Tata Coffee. They operate under the name Tata Starbucks and have been active since the beginning of
2012. Their stores currently number just under 30, but frequent openings will see this figure continue to tick
up. In the long term, Starbucks targets India as important as China, with CEO Howard Schultz saying that
the country will home 'thousands' of Starbucks stores.
Given the expansionary capacity of Starbucks and Dunkin' Donuts and their Indian ambitions, there will be
considerable dynamism in the coffee sector over the coming years. These investments will see consumers
converting to higher-value, better-quality products and demanding increased range - something that ongoing
economic development has enabled them to pursue.
Although the Indian coffee market is far from crowded, the entrance of such financially powerful and
expansion-oriented firms naturally warrants a clearer business strategy from existing players such as Caf
Coffee Day, Barista and Costa.
We believe that those already present in India will benefit from accelerating their organic expansion and
entrenching their brands deeper among Indian consumers. Indeed, we believe existing players will need to
secure prime locations in the high-consuming urban areas of Delhi and Mumbai before they are snapped up
by multinationals such as Starbucks and Dunkin' Donuts.
With this in mind, existing coffee players are expanding domestically. Caf Coffee Day took a period of 14
years to set up 1,000 stores in India but is now planning to double its outlet count within the next four years
to 2017. Costa Coffee, Coffee Bean & Tea Leaf (13 stores) and Gloria Jean's Coffee (15 stores) are also
planning to double their store numbers in India over the next 12 months.
Over the longer term, however, existing coffee players could struggle against the global giants, and we think
the priority for existing coffee players must be to get their positioning right in the country in order to
successfully take advantage of the growing coffee culture, in line with the expanding middle class.
Starbucks will be positioning itself at the premium end of the Indian coffee market, and we believe it would
be unwise for others to launch a challenge in this segment given the company's well-established premium-
brand appeal.
Existing coffee retailers could also leverage their local market expertise to secure a domestic foothold. Caf
Coffee Day, for instance, has been in the Indian coffee market for more than 14 years, and its familiarity
with Indian consumer preferences would undoubtedly give it a competitive edge against Starbucks or
Dunkin' Donuts given the localised tastes of the Indian market.
While tea overwhelmingly remains the most popular hot beverage in India, coffee consumption is slowly
catching up, especially among the aspirational young middle class. American brands such as Starbucks and
Dunkin' Donuts are likely to benefit from such a clientele, with informal street vendors of traditional tea or
chai likely to be those who lose out the most. This is especially the case given that the traditional tea sector
within India will be increasingly formalised in the coming years.
Alcoholic Drinks
India's alcoholic drinks sector is fairly dynamic, attracting an increasing amount of domestic and
multinational interest. A low starting point means that considerable annual growth rates and significant
room for continuing expansion can be achieved in the sector for the foreseeable future. Currently,
consumption of beer is estimated to be only around 1.6 litres per capita, which puts India towards the
bottom of regional beer drinkers. In Thailand and Vietnam, for example, per capita beer consumption is
estimated to be 30.4 litres and 28.2 litres respectively in 2013.
The alcoholic beverages industry in India is dominated in equal parts by beer and spirits, with the wine
market a distant and undeveloped third. The industry is currently experiencing something of a watershed
moment, as the commanding United Breweries is in the process of selling its most valuable subsidiary,
United Spirits, to global distiller Diageo.
over the past decade. Incomes in the country have increased strongly, and in many emerging economies the
real challenges to multinational beer companies. Per capita beer consumption is estimated at just 1 litre in
India, compared with well over 20 litres in China, for example. Although India's spirits industry has
boomed, the same has not been seen in the beer segment. We highlight a number of reasons for beer's
underperformance below.
Culture: Beer consumption is not widespread, and advertising is not without its regulatory hurdles. It is
difficult to advertise beer through conventional channels such as television; United Breweries Group has
advertised its Kingfisher brand on its namesake airline, for example.
Taxation: India generally taxes beer heavily, which prices out much of the potential consumer market.
Access: It is not easy to buy beer across much of the country. Permits are needed in some states, and in
many cities on/off trade outlets are often not readily accessible.
Price: Beer is relatively very expensive in India. As mentioned previously, it is taxed heavily, which means
taxes comprise a large chunk of the commercial price of beer. Without the scale that one would assume for
a market of India's size, it has been difficult for companies to generate strong profit margins.
Low Profit Margins: Because of the high taxes, lack of real scale and high operating costs (including
distribution and power outages), profit margins on beer are generally relatively low in India.
Despite all this, the sheer scale of the Indian consumer market is so tempting that we expect foreign beer
companies will continue to view the country as a major opportunity. United Breweries, which is 37.5%
owned by Heineken, and its Kingfisher beer dominates the market. Somewhat uniquely, Kingfisher is
successful across the market, from low- and middle-income consumers to high-income Indians drinking
beer in expensive hotels.
Interestingly, while multinational involvement in the brewing sector has been considerable, internationally
branded spirits and wines continue to play fairly minor roles in their respective industries. Internationally
branded spirits are estimated to account for only around 2% of the total Indian spirits market. India's local
wine sector has also managed to thrive with minimal multinational involvement, with imported wines often
considered prohibitive in terms of price -high import taxes doing little to alleviate this - and unsuitable for
consumption with Indian foods.
Spirits
United Spirits, currently being bought out by Diageo, is the country's leading producer of spirits. Other
major players in the spirits sector are India's Allied Blenders and Distillers, US-based Bacardi Martini
and French company Pernod Ricard. Up until now, Diageo has imported most of its spirits, but following
the purchase of United Spirits will concentrate on the premium end of the market. Indeed, Diageo firmly
believes that the most profitable strategy for operations within India is via premiumisation. Diageo will
concentrate on providing premium-end whisky and white spirits in India, projecting strong double-digit
sales growth in both segments, rather than catering to the mass market.
The UK-based company will expand its flagship Johnnie Walker brand by launching limited editions of its
super-premium Johnnie Walker Blue Label, as well as expanding its Red Label and The John Walker
products. Diageo will also downsize its sole local brand, Rowson's Reserve, in an attempt to develop its
upmarket focus and image. Following the confirmation of United Spirits' takeover, Diageo has now begun
exiting many of United Spirit's unprofitable mass-market brands in India.
Though BMI forecasts real GDP per capita to increase significantly over our forecast period, we believe
premiumisation is the correct strategy for food and beverage expansion within India. We forecast spirits
sales in volume terms to increase by 32.3% between 2014 and 2018, and expect local currency value sales
growth to rise by 55.5% in the same period to reach INR708.2bn (US$12.3bn).
Bacardi is already a fairly significant player in India's white spirits industry, and the company has enjoyed a
compound annual growth rate of 20% over the last few years. Bacardi may consider launching some of its
ready-to-drink products, such as Bacardi Breezer, in India, but for now premium spirits remain the priority.
Foreign spirits presently account for just 1-2% of the total Indian spirits market, hampered by their high
prices.
Government regulations to raise the minimum age for consuming liquor should prove supportive of the
sector's growth. The Maharashtra state government has increased the minimum age for consuming liquor to
25 years. Previously, the legal drinking age for rum, gin, whisky, vodka and country-made liquor was 21
years. This is part of the government's new de-addiction policy, which obtained the cabinet of ministers'
clearance. Under the policy, the government set the legal drinking age for mild beer at 21 years. According
to Sachin Ahir, the minister of the state social justice department, penal action would be initiated against
violations.
Beer
Although the country's spirits market is fairly mature, the beer sector still provides a good deal of
opportunity for manufacturers. Domestic firm and the former parent company of United Spirits, United
Breweries, is the commanding power in the sector, though Western brewers are keenly watching for
opportunities. Anglo-South African brewer SABMiller, Heineken's regional joint venture Asia Pacific
Breweries and Diageo are all present in the country and are seeking to extend their current market share
through further investment. SABMiller and the United Breweries Group currently control around 80% of
the market.
Canada-based beer producer Molson Coors has purchased a controlling stake in Cobra India after the
Indian beer company 'ran into capital difficulties' in mid-2011. Molson Coors revealed that the purchase of
the stake plus upfront investment would cost US$35mn and that the business is to be renamed Molson
Coors Cobra India. The move will give the firm greater exposure to the high-growth Indian market and
comes two years after it purchased a 50.1% stake in Cobra's UK business.
One of the more recent entrants is Crown Beers India, part of the UK's Crown Beers, which was formed
in February 2007. By far the most prolific brewer in the country is domestic firm United Breweries, which
produces the ubiquitous Kingfisher brand beer. United Breweries has come under criticism following
double digit profit falls in its most recent half-year results. Such underperformance, however, came as a
result of local laws forcing the brewer to use new rather than recycled bottles, which has since been
reversed.
In May 2013, Heineken increased its stake in United Breweries from 37.5% to 40.7%, as the Dutch brewer
increases its exposure in Asia Pacific following its acquisition of Asia Pacific Breweries in late 2012.
Wine
Having proved receptive to learning from established wine-making markets, even if actual direct investment
has been limited, India now boasts a number of well-respected vintners - Sula Vineyards and Grover
Vineyards among them - while United Spirits has also forayed into the sector. This is a far cry from the
market just 10 years ago when a handful of vintners dominated; many of them catered for the niche,
premium export market only, ie high-end Indian restaurants in Western markets.
Despite the popular opinion that the majority of wine consumed in Asia is imported from established wine-
making countries, an estimated 75% of wine consumed in India is produced locally. This reasonably well-
established local market is likely to help to support and fuel future growth thanks to heightened consumer
familiarity and the removal of scepticism that invariably accompanies perceived expensive imports.
Fuelled by these dynamics, India-based conglomerate United Breweries is set to launch new wine brands
within the next few months, bearing out its confidence in the scope for premiumisation growth in the
country. The firm plans to expand its wine portfolio by focusing mainly on the Four Seasons brand and will
also import French wine brand Bouvet Ladubay.
Nevertheless, the audience for wine in India will remain comparatively small. As New World vintners, such
as Chile, South Africa and New Zealand, fight fiercely with Old World stalwarts, such as France and Italy,
there is little scope for less-experienced New World players, such as India, to grab much of the pie.
Mass Grocery Retail
India's mass grocery retail (MGR) sector is dominated by small-scale traditional retail outlets. BMI
estimates that this fragmented offering still accounts for around 90% of the country's grocery retail sales.
However, this will change fast as multinationals begin to seek opportunities to enter India, and as local
organised players accelerate their own expansion and business-activity efforts in preparation for greater
competition. The country's economic development has allowed for the further development of MGR, as
increasingly wealthy consumers in major towns and cities turn to modern formats in search of the
convenience and quality that they now desire and can increasingly afford.
US based grocery retailer Walmart will re-enter the Indian mass grocery retail (MGR) market with a new
partner, having ended its deal with Bharti Enterprises in October 2013. The U-turn by Walmart highlights
the massive potential that the Indian MGR sector offers, outperforming that of all developed nations.
investment policy in multi- brand retail before looking to enter the segment.
UK retailer Tesco signed a deal with the Tata Group conglomerate for an investment of US$110mn, despite
the company deleveraging from many of its international operations over the past 12 months. Similarly,
French retailer Carrefour has recently announced further investment into its Indian operations, at a time
when it is predominantly concentrating on its European business.
Traditionally, the big three global retailers have operated wholesale businesses in India, as selling directly to
Indian consumers proves to be difficult from a regulatory standpoint. However, recent movements from
both Tesco and Walmart indicate a more deliberate step to such activity, with Carrefour looking at a similar
deal.
Much Greater Potential Returns
Mass Grocery Retail Sales Growth (Local Currency % chg, y-o-y)
RETAIL: Total mass grocery retail sales, INR~ % y-o-y
RETAIL: Total mass grocery retail sales, CNY~ % y-o-y
RETAIL: Total mass grocery retail sales, USD~ % y-o-y
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
e
2
0
1
3
e
2
0
1
4
f
2
0
1
5
f
2
0
1
6
f
2
0
1
7
f
2
0
1
8
f
0
20
40
-20

Source: Central Statistical Organisation, Company information, BMI.
The persistence of multinational retailers highlights the opportunities that the Indian MGR market offers.
The graph above demonstrates the strength of the Indian consumer, with MGR sales growing by an average
of over 10% per year between 2014 and 2018. We expect such a trend to continue well into the long term,
with factors such as MGR penetration and improving infrastructure combining with higher per capita
incomes and a growing population.
That said, significant risks remain within the Indian market, which is why the country ranks only 10th out of
14 countries in our Asia Pacific Risk/Reward Ratings for Q214. Such risks include very low average
incomes and food consumption, as well as poor infrastructure and difficult bureaucracy and regulations.
Despite this, we believe that the Indian MGR sector will see increasing foreign investment from both
existing and new entrants, as companies concentrate on the long-term growth story.
Within India's grocery retail sector, all four key modern formats are present. The supermarket and
convenience store sectors have experienced the greatest development to date, while the hypermarket and
discount sectors are still in their infancy. Once again, the arrival of multinationals can be expected to change
this, with both formats likely to attract considerable investment in the early phases of market entry. At
present there are a minimal number of multi-format retailers in India. Similarly, there is an absence of
national operators, with most modern retailers having chosen to expand their operations within their home
state in order to reduce distribution costs.
Inefficient supply-chain management is viewed as one of the biggest problems facing the Indian MGR
industry today; less problematic for the broader retail industry, supply chain problems have been prevalent
in the grocery retail industry where the timely distribution of perishable items is vital. Retailers have cited
poor road infrastructure and complex federal and state tax laws that make cross-state transportation difficult.
India's transport networks certainly need investment, although rural infrastructure and national highways
have been identified, along with power, as the main beneficiaries of government spending. As the situation
stands, India's vast size and underdeveloped infrastructure is preventing retailers from opening stores any
great distance from their distribution hubs.
Within this environment, retailers themselves must take responsibility for supply-chain inefficiencies rather
than view them as a national problem affecting all players equally. At a company level, the primary problem
is a lack of expertise. The majority of retailers have yet to set up a separate unit for managing supply-chain
issues, instead treating supplies as part of the day-to-day running of a store. This has meant a fairly
unidirectional flow of information - retailers simply summon stock when they need it and then wait for it -
and a lack of investment in storage space to support the scale of most retailer ambitions.
Leading MGR Players
The modern retail sector is dominated by a handful of players, with the largest being Pantaloon,
Subhiksha, Reliance, Big Bazaar, Margin Free Market and Trinethra Super Retail. The UK's Tesco is
the latest foreign entrant into the market, which already includes Germany's Metro, Dutch company Spar
and US-based Walmart. Tesco is planning to work with Tata's Star Bazaar hypermarket business on a
franchise basis. Additionally, the new wholesale outlets will supply Star Bazaar stores, meaning that Tesco-
branded private-label goods could appear in consumer retail outlets in India.
Carrefour opened its first Indian wholesale outlet in July 2010 in the capital, Delhi. The outlet caters to
independent retailers and the hospitality trade, and gives Carrefour a foothold in the market from which it
can begin to establish its distribution infrastructure in preparation for a time when regulations are relaxed.
Carrefour continues to develop down this route, planning to open two new wholesale stores in Bangalore, as
well as in other Indian states.
Table: Structure Of India's Mass Grocery Retail Market By Estimated Number Of Outlets, 2005-2011

2005 2006 2007 2008 2009 2010 2011
Supermarkets 4,370 4,506 4,820 5,100 5,400 5,800 6,000
Hypermarkets 160 220 285 360 409 570 610
Discount stores 750 880 1,025 1,307 1,350 2,300 1,370
Convenience stores 3,700 4,000 4,500 5,000 5,050 5,200 5,280
Total MGRs 6,780 7,396 8,430 9,610 12,209 13,870 13,260
Source: Trade press, BMI
Table: Structure Of India's Mass Grocery Retail Market - Sales By Format (US$mn), 2005-2011

2005 2006 2007 2008 2009 2010 2011
Supermarkets 6,606 7,609 8,695 7,962 7,501 11,270 13,442
Hypermarkets 609 1,349 2,965 4,344 4,640 6,410 7,783
Discount stores 1,388 1,722 2,119 2,173 2,428 2,982 3,349
Total MGRs 9,976 12,261 15,586 16,200 16,292 22,912 27,073
Table: Structure Of India's Mass Grocery Retail Market - Sales By Format (INRmn), 2005-2011

2005 2006 2007 2008 2009 2010 2011
Supermarkets 291,300 344,560 359,550 346,460 363,150 515,311 627,443
Hypermarkets 26,860 61,100 122,600 189,020 224,670 293,098 363,289
Discount stores 61,200 77,970 87,620 94,560 117,560 136,356 156,309
Total MGRs 439,900 555,250 644,500 704,930 788,790 1,047,643 1,263,681
Table: Grocery Retail Sales By Format (%) - Historical Data & Forecasts

2012e 2021f
Organised 9 23
Non-organised/Independent 91 77
e/f = BMI estimate/forecast. Source: BMI
Industry Trends And Developments
Food
Key Industry Trends And Developments
Hindustan Unilever Waits Out Slowdown
Hindustan Unilever has posted solid quarterly results, though sales still remain depressed from 18 months
ago, indicating the difficult economic environment that persists within India.
Hindustan Unilever (HUL) is India's largest consumer goods maker, selling products ranging from personal
care products to beverages. The company is majority owned by global FMCG giant Unilever, which has
seen its results hurt in recent months by the broad based emerging markets slowdown. India's own
slowdown has hurt HUL's sales growth over the past year, with value growth averaging 7% year-on-year (y-
o-y) over the past three quarters, compared with an average of 15.5% y-o-y for the two quarters before.
Processed Food Market To Rise 10% Annually Through 2015
The Indian processed food market is forecast to record an annual growth rate of 10% to reach at least US
$194bn by 2015, up from the existing US$121bn. The processed food market is expected to grow
significantly in the next few decades, with the country attracting huge investments in food and food
processing technologies. However, controlling rising food inflation is going to be a big challenge for the
Indian government and it needs to devise strategies to deal with the issue. Economists believe that it is vital
to scale down the fiscal deficit that has crossed the guidelines specified under the Fiscal Responsibility and
Budget Management Act, 2003.
Mondelez To Build India's Largest Chocolate Plant
Mondelez International is to build the largest chocolate manufacturing plant in India as part of its
emerging markets investment strategy. The American firm, which spun off from Kraft Foods in 2012,
plans to invest US$190mn in south-east India to erect the company's largest plant in the Asia Pacific region.
The plant will have an annual capacity of 250,000 tonnes and is part of Mondelez's ongoing supply chain
reinvention plan.
Following calls from activist shareholders for Mondelez to increase its profitability, the company
announced in September 2012 plans to redesign its supply chain, with the aim of saving almost US$1bn by
2015. This latest investment comes on top of US$200mn that has been pumped into the company's Indian
operations since 2010, with Mondelez looking to become more involved in all stages of production within
its Indian operations.
Burger King Joins Everstone To Open Restaurants In India
Burger King, the US-based hamburger chain, is planning to set up shop in India, joining a rush of Western
fast-food companies plunging into a market seen as having huge long-term potential as a result of rapid
social change. Burger King has formed a joint venture with the Everstone Group, an Indian-owned,
Singapore-based private equity and real estate group, and together the partners will develop a strategy for
rolling out the restaurants across India.
Burger King said the joint venture would work on developing the supply chain for the restaurants before
rolling out the restaurants, though no details were given about where or when the first store might open.
Despite India's own deep-rooted culinary traditions, Western fast-food chains have been flocking to the
country. A growing middle class and a youthful population, which has rising disposable incomes and is
increasingly pressed for time, is seen as having a much greater appetite both to eat out and try new foods.
India's overall fast-food market is valued at more than US$12bn but is currently dominated by local
independents making traditional Indian cuisine, while foreign brands account for about 5% of the total
market.
Nestl India's Net Profit Rises 6.62% In Q313
Nestl India, a subsidiary of Switzerland-based food company Nestl, registered consolidated net profit
growth of 6.62% year-on-year (y-o-y) to INR2.85bn (US$46mn) in Q313 ended September 30. The
company's net sales grew 11% y-o-y to INR23.48bn (US$384mn) during the period, compared with
INR21.15bn (US$345mn) in Q312. Nestl India's overall costs increased 11.21% y-o-y to INR19.5bn (US
$318mn) in Q313, compared with INR17.53bn (US$286mn) in the same period in 2012.
Britannia H113 Sales And Net Profit Up
Indian food company Britannia Industries' consolidated net profit increased 77.6% y-o-y to INR1.87bn (US
$29.3mn) in H113. On a standalone basis, the company's net profit rose 104.3% y-o-y to INR1.82bn (US
$28.51mn) during the reported period. The company's consolidated revenue increased 13.5% to INR32.8bn
(US$513.9mn) in H113; on a standalone basis, revenues grew 14.2% to INR29.9bn (US$468.4mn).
Mars Launches Galaxy In India
US-based chocolate maker Mars has launched its second chocolate brand 'Galaxy' in India as it looks to
expand its product portfolio in the region, reports Economic Times. The company, which entered the Indian
market with the introduction of the Snickers brand in 2011, is looking to establish the two chocolate brands
in the country. Mars India said its main aim currently is to focus on these two brands and to expand the
distribution network across India.
Cadbury To Invest US$300mn In India
US company Mondelez's UK-based subsidiary Cadbury plans to invest at least US$300mn in India before
2016. Daniel P Myers, executive vice-president of integrated supply chain at Mondelez, added that the
company has already spent US$190mn since 2010 on brownfield expansions in the country. Cadbury India
is also looking to make major investments into its greenfield plant at Sri City as it looks to make it the
company's largest manufacturing plant in Asia.
PepsiCo Renews Efforts In Indian Snacks Sector
PepsiCo is looking to regain market share in the Indian snacks sector, having lost ground to large regional
firms in the last few years. Last month they were reported to be exploring an offer for Balaji Wafers, a
Rajkot-based manufacturer of potato chips. Such a venture could increase not only their product base, but
also give them domestic experience of the market, similar to that gained in their 2012 deal with the Delhi
outfit LT Foods. Their flagship snack products, Kurkure and Lay's Potato Chips, each lost 2-3% of market
share between April and September of 2012, with the company having lost a 12.9% share of the snacks
market between 2008 and 2012, according to industry data. The confectionery sector, which includes both
sweet and savoury snacks, is one of India's most dynamic, with tremendous potential for growth. Total sales
stood at US$1714.9m in 2010, and we believe that they will reach US$3827.3m in 2017. PepsiCo are
therefore understandably keen to expand with the industry as market leader.
Indian Consumers Not Following Health-Conscious Trend, PepsiCo Says
The chief executive of US-based food and beverage company PepsiCo has said that despite a significant
shift in consumer habits towards healthier food options, Indian consumers are not adhering to this trend.
According to Indra Nooyi, Indian consumers continue to choose products that satisfy the regional palate
regardless of whether the snacks are deemed healthy. As a result, a number of health-focused products in
PepsiCo's 'Better For You' range have registered poor sales in the country and have consequently been
removed from shelves.
IRS: Indian Dairy Industry To Double By 2020
Investor Relations Society (IRS) has predicted the size of the Indian diary industry will double to US$140bn
by 2020 on the back of rising demand and increasing disposable income. The IRS said in a report that it
expects the Indian dairy industry, in both organised and unorganised sectors, to double in the next six to
seven years. The report also highlighted that the growth in finances of existing local companies,
diversification of the dairy sector and entry of foreign companies are all indicators that the Indian organised
dairy industry will continue to grow at least until 2020.
Dharampal Satyapal Group Targets Three-Year Dairy Business Expansion
India-based diversified conglomerate Dharampal Satyapal Group is aiming to increase the annual revenue
from its dairy business to INR3bn (US$48.9mn) by 2016. The company has already invested INR750mn
(US$12.2mn) towards this goal, and is planning to spend a further INR500mn (US$8.2mn) during the
current year. These investments are being made into expanding the firm's dairy product portfolio and
increasing production capacity.
Hindustan Unilever Launches Projects To Expand Distribution
Hindustan Unilever, the Indian subsidiary of Anglo-Dutch consumer goods company Unilever, has
launched two new projects as part of an effort to expand its distribution network in the country. The two
projects - called 'Telecalling' and 'Columbus' - will focus on urban and rural areas respectively. As part of
the Telecalling scheme, Hindustan Unilever will target stores that do not currently stock its products via
telephone calls. The Columbus project has aimed to expand the company's distribution reach to more than
150mn rural consumers by the end of 2013.
Drink
Coca-Cola Finds Going Tough In India
Coca-Cola, The Coca-Cola Company's (TCCC) iconic soft drink brand, has failed to capture the Indian
market in the same way it has elsewhere. As a result, TCCC has been and continues to engage in a loss-
making strategy in order to increase the popularity of its flagship beverage.
Until summer 2013, the most popular carbonated soft drink in India was Thums Up cola, a drink introduced
in the 1970s following TCCC's withdrawal from the country. Thums Up is now owned by TCCC, having
been bought by the company upon its re-entry into the market in the 1990s. While TCCC markets the Coca-
Cola brand within the country, consumers' taste for Thums Up has endured despite TCCC's efforts to
establish its own-brand beverage. Coca-Cola is also less popular than PepsiCo's Pepsi, leaving Coca-Cola
fourth place in the Indian carbonated drinks market.
Costa Coffee Targeting South East Asia
Costa Coffee, the UK's leading coffee house chain by number of outlets, is becoming increasingly
important to owner Whitbread, which also has interests in the hotel sector. Costa continues to more than
hold its own in the UK, where it is mainly challenged by Starbucks Coffee and Caf Nero, while also
pursuing growth in China. It has also been building a business in India on a lesser scale. The company will
now look to take its business to Thailand, where Starbucks has been a first mover. No details on specific
expansion plans in the region have been disclosed yet. Whitbread has used Costa as its main entry point into
international growth markets, as its hotel business is a bit more mature.
Costa's contribution to group sales has increased from about 10% in 2006 to around 33% in 2013, as the
first chart illustrates. Costa and Starbucks have been able to pursue growth in primarily tea-drinking nations
such as China by selling a lifestyle experience. The companies have targeted a specific demographic and
income bracket that is willing to spend US$2-3 on a hot beverage, ultimately providing a modern branded
location for people to meet up. As such, the wider coffee angle is much less relevant.
Hard Beer Market To Crack
over the past decade. Incomes in the country have increased strongly, and in many emerging economies the
real challenges to multinational beer companies. Per capita beer consumption is estimated at just 1 litre in
India, compared with well over 20 litres in China, for example. Although India's spirits industry has
boomed, the same has not been seen in the beer segment.
Premiumisation Will Drive Indian Growth For Diageo
Diageo, the world's largest distiller, has revealed that it believes the best strategy for growth in India, one of
the fastest-growing regions globally in terms of alcohol consumption, will be the expansion of its luxury
spirits portfolio.
Diageo will concentrate on providing premium-end whisky and white spirits in India, projecting strong
double-digit sales growth in both segments, rather than catering to the mass market. The UK-based
company will expand its flagship Johnnie Walker brand by launching limited editions of its super-premium
Johnnie Walker Blue Label, as well as expanding its Red Label and The John Walker products. Diageo has
changed its strategy by focusing on established spirits drinkers and away from the burgeoning mass market.
Distribution, access and affordability issues remain key difficulties in India's fast-moving consumer goods
market, and these concerns have affected many multinational players within the country. Diageo believes
that it will be easier, and more profitable, to target existing and more wealthy alcoholic beverage drinkers
within India.
Diageo Buys Majority Stake In India's United Spirits
UK drinks giant Diageo is buying a majority stake in India's United Spirits group for GBP1.28bn (US
$2.04bn). Diageo, whose brands include Johnnie Walker, Guinness and Smirnoff, will get a 53.4% share in
Indian liquor baron Vijay Mallya's United Spirits. The deal will help Mallya reduce United Spirits' debts
and free up funds for Kingfisher Airline. The two companies announced in September 2013 that they were
in talks. Diageo and United Spirits initially started negotiations in 2008, but talks broke down the following
year. Diageo is initially buying a 27.4% stake for GBP660m in United Spirits, whose brands include Whyte
& Mackay Scotch whisky. The UK firm will then launch a mandatory offer for a further 26% stake in the
Indian group.
United Breweries' Tough First Half Only Temporary
United Breweries (UBL), India's largest producer of beer in terms of market share, has revealed that net
profit in its Q214 fell 35% year-on-year (y-o-y) on the back of extended rains experienced during this year's
monsoon season. Net profit in the quarter stood at INR342mn (US$5.5mn), down from INR528mn in Q213.
Net sales fell by a smaller margin, by 2% y-o-y to INR7.52bn (US$120.4mn).
The company attributed the decline in profit to inflationary pressure in the Indian economy, as well as new
laws governing bottle usage. Local excise laws required UBL to use new bottles for 100% of its production
at its Maharashtra facility. This led to an unprecedented increase in input costs, to more than INR460mn
(US$7.4mn) during the first half of the year. Without this added cost, net profit for the quarter would be up
on the same period last year. Shareholders in UBL will very likely find encouragement in the fact that such
an imposition is only a one-time cost. Due to successful lobbying, the Maharashtra government has since
reversed course and agreed in October that second-hand bottles will once again be allowed in production.
Despite the overall sales decline, UBL's volume sales rose in some key Indian regions, with double-digit
growth recorded in Rajasthan, West Bengal, Orissa and Uttar Pradesh in the first half of FY2014. UBL's
overall market share of more than 50% also did not suffer, the company said. As a result of the ruling in
Maharashtra and the government's subsequent reversal, as well as this year's unpredictable monsoon season,
UBL's share price has been extremely volatile in the past year.
PepsiCo Commits US$5.5bn To India
PepsiCo will invest INR33,000 (US$5.5bn) into India by the end of 2020, CEO Indra Nooyi said on
November 11 2013. The investment will go into all forms of the company's Indian business, particularly
concentrating on product innovation, manufacturing, infrastructure and agriculture. Though Coca-Cola is
the largest beverage provider in India, PepsiCo is the largest combined food and drink business in the
country, active across a diverse range of beverage and snacks sub-sectors. In recent years, PepsiCo has
extensively invested in India to remain ahead of its multinational rivals. The company has developed many
strategic partnerships in the region, such as that with Tata Tea in 2010, in order to develop local market
knowledge and take advantage of supply chains.
United Spirits' Net Profits Up 15.3% In H113
Indian spirits producer United Spirits' net profit increased 15.3% y-o-y to INR2.1bn (US$33.1mn) in H113
ended September. The company's sales grew 1.1% to INR42.3bn (US$666mn) during the period, while its
operating profits remained flat at INR6.1bn (US$96mn). For Q213 ended September, United Spirits' net
profit increased 140% y-o-y to INR942.7mn (US$14.85mn), while sales declined 8.2% to INR20.4bn (US
$321mn).
Heineken Increases Stake In United Breweries
In May 2013, we reported that Netherlands-based Heineken, the world's third largest brewer, had increased
its stake in Bangalore-based United Breweries. Upping its share by 3.2%, the company now holds 40.71%
of India's largest brewery, with the move reflecting the brewer's continued confidence in the country's
growing beer market. With rising incomes and a large, youthful population, India's dynamic consumer
outlook has spurred an uptick in alcohol investment activity over recent months.
Dynamism Heating Up In Hot Drinks Sector
Stephen Twining, director of UK tea company Twinings, has visited India in search of markets for the
firm's teas. Twining said the company recognises the potential in India, as tea is the country's national drink;
however, most Indians brew their tea from loose leaves rather than tea bags. Twinings, a 300-year-old
company, will therefore look to provide quality niche teas for the varied Indian taste. Indian sales make up
just 1% of Twinings' turnover.
The Pakistan Tea Association has entered a memorandum of understanding with the Indian Tea Association
to import 50mn kg of tea by 2015. Pakistan imported 24mn kg of tea from India in 2011, according to CS
Bedi, the chairman of the Indian Tea Association. Bedi added that annual tea consumption in Pakistan is
235-240mn kg, which is growing at an annual rate of 2%.
Italian coffee manufacturer Lavazza has stated that it intends to expand further in to the Indian market with
its Barista coffee chain, and triple its revenue within three years. Currently, Indian operations account for
between 3% and 4% of the group's revenue and it intends to increase the figure to 10% by 2015. Lavazza
also intends to build 50-100 further new outlets to add to the 160 outlets it currently has. The development
is anticipated to cost the group between INR150mn (US$3mn) and INR300mn (US$6mn).
Mass Grocery Retail
Walmart's Return To India Highlights Potential
US based grocery retailer Walmart will re-enter the Indian mass grocery retail (MGR) market with a new
partner, having ended its deal with Bharti Enterprises in October 2013. The U-turn by Walmart highlights
the massive potential that the Indian MGR sector offers, outperforming that of all developed nations.
investment policy in multi- brand retail before looking to enter the segment.
UK retailer Tesco signed a deal with the Tata Group conglomerate for an investment of US$110mn,
despite the company deleveraging from many of its international operations over the past 12 months.
Similarly, French retailer Carrefour has recently announced further investment into its Indian operations, at
a time when it is predominantly concentrating on its European business.
Traditionally, the big three global retailers have operated wholesale businesses in India, as selling directly to
Indian consumers proves to be difficult from a regulatory standpoint. However, recent movements from
both Tesco and Walmart indicate a more deliberate step to such activity, with Carrefour looking at a similar
deal.
India Makes Slow Progress Towards FDI
Although India's move to open up the economy to foreign direct investment (FDI) was widely heralded as a
major and long-overdue step forward, the reforms announced September 2012 after a drawn-out period of
delays have so far not had much of an impact in actually attracting investment in the country's mass grocery
retail market. Given the complexities involved in doing business as a foreign retailer in India, caution has
very much been the theme since the initial hyperbole has calmed down. In our opinion, India still does not
carry the appeal that China or Brazil does for major retailers for a variety of reasons.
There are still issues the Indian government needs to iron out to make the country attractive to major
retailers, despite the positive fundamentals that suggest the retail market is a key opportunity for growth. So
far, none of the world's major food retailers have entered India. Most of the big players, including Walmart,
are seeking further clarification from the government to get a better handle on the operating landscape and
hopefully lobby for amendments that make the overall proposition more attractive. We argued earlier that
the fact that India was distinguishing between multi and single-brand retail was a disadvantage for food
retailers, as the likes of IKEA, for instance, that sells under one brand, will have a more favourable
operating environment.
India Way Behind
India & China- Mass Grocery Retail Sales (US$bn)
e/f= BMI estimate/ forecast. Source: Trade Press, BMI
Competitive Landscape
Table: Key Players In India's Food & Drink Sector
Company Sub-sector Sales,
INRbn
Sales, US
$mn
Financial
year-end
No. of
employees
Year
est.
Hindustan
Unilever Ltd
Food - Convenience, various and
Beverages - Hot and Soft
275.4 4,285
March
2013
15,000 1931
Coca-Cola India Beverages - Soft na 9,010
December
2012
7,000 1993
Amul Dairy
Food - Dairy, Confectionery,
Convenience and Beverages - Hot
and Soft
135.69 2,150.0
March
2013
4,800e 1946
PepsiCo
Food - Snack and Beverages -
Soft
na 65,492.0*
December
2013
3,000 1989
Tata Global
Beverages
Food - Convenience and
74.4 1,157.4
March
2013
2422 1964
Nestl India Ltd
Food - Dairy, Confectionery and
83.7 1,301.9
December
2012
4,983 1961
Britannia
Industries Ltd
Food - Biscuits 62.4 970.8
March
2013
1,982 1892
United Breweries
Ltd
Beverages - Alcoholic 38.99 716.92
March
2013
1,653 na
Dabur India
Food - Snacks and Ingredients;
Beverages - Soft
61.76 1,135.7
March
2013
2,527 1936
SABMiller India Beverages - Alcoholic na 3,797.0
March
2013
na na

Hatsun Agro
Products
Food - Dairy 21.65 346.4
March
2013
2,271 1970
Parle Agro
Food - Snacks, Convenience and
Beverages - Soft
na 150.0e 2011 1,000 1985
Radico Khaitan Beverages - Alcoholic 12.9 200.6
March
2013
850 1943
Seagram India
(Pernod Ricard)
Beverages - Alcoholic na 120.0e 2011 na 1994
Lotte India Food - Confectionery 3.19 51.1
December
2012
7,500 1897
e = estimate, na = not available; * group sales. Source: BMI, Trade press, Company reports
Table: Key Players In India's Mass Grocery Retail Sector
Parent Company Country of
Origin
Sales,
INRbn
Sales, US
$mn
Financial
Year Ending
Fascia Format No. of
Outlets
Year
est.
Pantaloon Retail India 12.57 231.1 March 2014 Value Discount stores 30 1997
- - - - - Big Bazaar Hypermarkets 160 -
- - - - - Food Bazaar Supermarkets 145 -
- - - - -
KB's Fair
Price
Supermarkets 143 -
Shopper's Stop India 31.8 495.5
March
2013
Shopper's
Stop
Supermarkets 46 1991
RPG Enterprises
Retail
India 44.92 718.7
December
2013
Foodworld Supermarkets 67 1996
- - - - - Spencer Hypermarkets 225 -
Consumer
Protection and
Guidance Society
India na 218.4e 2011 Margin Free Discount stores 350 1993
Tata Retail India na 196.1e 2011
Star India
Bazaar
Hypermarkets na -
Aditya Birla Retail India 254.9 4,750
March
2013
More Hypermarkets 12 2007
- - - - - Aditya Birla Supermarkets 550 -
- - - - - Trinethra* Supermarkets na -
Reliance Retail India 75.99 1,215.8
March
2013
Fresh Supermarkets 650 -
Nilgiri's Franchise
Pvt Ltd
India na 148.4e 2011 Nilgris Supermarkets 251 1905
Future Group India 201.86 3,229.8
December
2012
Big Bazaar Hypermarkets 161
Home Town
Convenience
Stores
14
Food Bazaar
Convenience
Stores
43
ezone
Convenience
Stores
38
Aadhaar Supermarkets 40

Home Stores India
Ltd
India na 21.2e 2011 Sabka Bazaar Supermarkets >100 2002

e = BMI estimate; na = not available; *Trinethra acquired by Aditya Birla in 2007. Source: Company data, Trade press,
BMI
Company Profile
Hindustan Unilever Limited
SWOT Analysis

Strengths

The strong brand awareness enjoyed by Hindustan Unilever Limited (HUL) facilitates
its domestic expansion.
The backing of a powerful parent company allows for considerable investment in

growth without the need for immediate returns.
Growth in its processed food and beverage division has been particularly strong as
consumerism in India continues to grow.
Weaknesses

Gaining access to India's vast independent retail sector is a necessary but immensely
time-consuming and often cumbersome task.
Unilever's aggressive promotional and branding initiatives and new product launches
require high advertising and promotional expenses, and these will continue to weigh
on its profits.
Planned expansion in the Indian coffee sector will require a significant investment,
which could further weigh on its profitability.
Opportunities

HUL is well established in the low-consumption but high-growth categories, such as
ice cream and confectionery, which allows plenty of room for long-term growth.
Among wealthy urban residents, further product innovation - particularly at the

premium end of the market - represents an excellent means of building market share;
the company recently announced that high-end processed foods would be an
important future growth area.
Traditionally healthy Indian diets and the continued emergence of the global health
trend represent excellent growth opportunities for HUL, particularly through products
such as healthy teas.
Threats

HUL's market share is under threat from an influx of foreign investment in the Indian
food and beverage sector, particularly in attractive sub-sectors such as confectionery.
Underdeveloped distribution infrastructure still restricts sales opportunities for fresh
produce in many parts of the country.
Relatively subdued domestic demand in 2012/13 may result in lower sales

opportunities for HUL.
Company Overview
HUL is majority owned (52.1%) by Anglo-Dutch fast-moving consumer goods giant
Unilever. The company is India's largest consumer products retailer. Its largest product
category in terms of revenue contribution is soaps and detergents. Its food and
beverage division, which includes brands such as Kwality Wall's ice cream, Knorr soups
and Lipton tea, generates around a quarter of its revenues.
Strategy
Ongoing strengthening in Indian consumer spending continues to be reflected in the
headline sales and volumes figures released by HUL. Notably, the company has
enjoyed impressive volume growth across their key product categories such as
homecare products, food and beverage and health supplements, further highlighting the
strength of the Indian consumer sector.
HUL is the market leader in most of the categories in which it operates, being number
one in laundry, soaps, hair care, home care, skin care and deodorants. HUL has
undertaken aggressive advertising, branding initiatives and continuous product
launches to boost its volume growth amid sustained inflation. Hindustan Unilever's
willingness to pass on the rising costs of production to consumers has also helped
protect its margin growth in an inflationary environment. The company has recently
revised upwards by as much as 10% the prices for its Lux and Liril soap brands.
The company's recent partnership with Indian mass grocery retailer Future Group
presents a host of synergistic benefits. Hindustan Unilever is partnering with Future
Group in developing a line of bakery products that will be distributed only through
Future's Big Bazaar stores. Interestingly, this partnership marks the first instance of a
tie-up between a mass grocery retail player and a consumer goods producer in India.
By linking up through such a partnership, Hindustan Unilever and Future could leverage
each other's brand identity to establish a deeper presence in India. Both Hindustan
Unilever and Future will be co-branding the line of bakery goods to be produced under
the partnership, which is likely to boost consumer awareness of the product line. The
development of a lower-value private-label bakery line also will sharpen the mass-
market positioning of Hindustan Unilever and Future, allowing them to better target the
lower and middle classes in India. Another benefit comes in the form of a stronger
distribution reach. Future has the largest network of more than 450 retail stores across
India, and the retailer's distribution strength would greatly facilitate Hindustan Unilever's
distribution efforts to the mass market and improve the visibility of its brands.
Financial Data

Sales, year to March 2013: US$4.3bn
Gujarat Co-operative Milk Marketing Federation
SWOT Analysis

Strengths

An increasingly diverse product portfolio has broadened Amul's customer base.
Successful entry into export markets has slightly reduced Amul's reliance on the
intensely price-sensitive market of India.
Amul enjoys strong brand recognition and has a reputation for high quality products.
Weaknesses

As a cooperative, Amul is arguably not as responsive to the changing needs of the
market as many of its rivals, although this has not prevented it from expanding rapidly
to date.
Due to the perishable nature of its dairy products, Amul will need to continue
investing in the development of its distribution network to enhance distribution
efficiency and increase sales opportunities.
Amul's higher-value products such as ice-cream face a limited consumer base given
the country's low existing incomes.
Opportunities

The higher-value processed dairy sub-sector represents an excellent growth channel
for Amul.
Investment in new product development in new sub-sectors will improve Amul's
chances of poaching market share from its competitors, such as its latest venture into
the ice cream parlour business.
Expansions in the high-value sectors can allow Amul to tap into the growing affluence
among India's middle classes.
Amul is committed in driving international expansion, planning to expand distribution

reach to 700 new markets over 2013-2014.
A depreciating Indian rupee will fuel export growth.

Threats

Competition is rising, with multinationals increasingly entering the market and with
local food producers turning to dairy in search of a combination of existing demand
and high-growth opportunities.
A slowdown in Indian economic growth may result in lower sales opportunities for
Amul.
Company Overview
Amul Dairy is one of India's largest food companies and one of its best-known brands.
Amul is credited with almost singularly driving the 'white revolution', the programme
that transformed India into the largest milk exporter in the world. Jointly owned by an
estimated 2.8mn milk producers, the company produces spreads, cheeses, UHT milk,
milk powder, fresh milk, curd and ice cream, and it has been pursuing diversification
into the confectionery, beverages and snack foods sub-sectors in recent years. As well
as selling its products in India, Amul also has a growing export business, with key
markets including Singapore, the US and Gulf countries.
Strategy
Product diversification has been integral to Amul's growth strategy in recent years. The
company's foray into the ice cream sector was particularly notable, putting it into direct
competition with major multinationals such as Unilever, and plans to enter the
confectionery and snack foods segments quickly followed. Like its rivals, Amul is
struggling in the face of elevated sugar, cocoa and milk prices - although being a
cooperative and buying directly from its members, it is arguably more immune to rising
milk prices than most. Nonetheless, the company is seeking ways of moving into
higher-margin areas that better offset higher commodity costs, including growing its
export business. This will be all the more important following the company's recent
decision to implement an aggressive pricing approach that will keep prices in a number
of categories at their current levels. More recently, looking to beef up its presence in
India, Amul plans to create co-operative farms in several states including West Bengal,
Bihar and Rajasthan, which would raise its milk output by a fifth.
Amul is now concentrating its efforts on international expansion, having added 306 new
distributors, 65 new super-stockists and 900 new sub-stockists. The group's plan for
2013-2014 is to expand distribution reach to 700 new markets, as well as to further
consolidate its dominance within India.
Financial Data
For financial year ending March:
2013 sales: US$2.2bn

Britannia
SWOT Analysis

Strengths

Britannia's commitment to expanding its geographic footprint is supportive of its top-
line growth.
Britannia's vast distribution network and nationwide sales force remains a high barrier
for potential market entrants, thus securing its leading position.
Expansions in production capacity should see Britannia better cater to rising

domestic demand.
Britannia's continued expansion of its health and functional food offerings leaves it in
a strong position to capitalise on growing health awareness among Indian consumers.
Weaknesses

Lower pricing power amid rising competitive pressure could prove a further drag on
its financial performance.
Numerous price hikes on the back of Britannia's failure to contain rising raw material
prices are detrimental to the company's sales growth.
Plans to re-enter the Sri Lankan market will very likely prove supportive of its long-
term revenue growth, although realistically Britannia will face a limited consumer base
in Sri Lanka as things stand.
Opportunities

India's favourable demographics and rising per capita incomes ensure a growing
audience for Britannia's brands.
A growing health-awareness trend represents a rapidly enlarging opportunity for

Britannia to diversify into health and functional foods.
The continued spread of modern retail in India will ease distribution challenges for
Britannia, allowing the company to further extend its reach into under-developed rural
areas.
Threats

India's inadequate distribution infrastructure, coupled with the perishable nature of
dairy products, reduces sales opportunities for Britannia.
An increasingly competitive confectionery market as a result of the continued arrival

of multinationals could lead to an erosion of Britannia's market share.
Company Overview
Britannia Industries is a leading Indian confectionery and dairy producer. The
company's product portfolio consists mainly of bakery products including biscuits,
cakes and bread, and dairy products such as milk, butter and cheese. Besides its
dominance in India, Britannia has a geographically diverse footprint through its exports
across various countries including Singapore, the US, Canada, Australia and New
Zealand.
Strategy
Given the immense potential of India's confectionery sector, it is unsurprising that
Britannia is looking to expand its manufacturing footprint in a bid to grow its domestic
presence and cement its leading position amid rising competitive pressures from
industry giants such as Cadbury (acquired by US major Kraft), Nestl and Amul.
The booming Indian economy will continue to fuel the expansion of the country's
middle- and upper-income consumer base, which will in turn fuel Indian food and drink
sector growth. Specifically, India's consolidating, increasingly competitive and thus
dynamic confectionery market continues to carry great promise as a strong long-term
growth engine.
Considerable growth in India's food sector will also come from the rapid acceleration of
the premiumisation trend as higher-value products, offering healthy and functional
benefits, are constantly being introduced to the market and adopted by higher-
spending Indian consumers. Britannia's move to enhance its domestic production
capacity could be oriented towards the further development of its strategy to harness
the consumer health trend. The leading Indian biscuit producer has introduced a
number of healthy products, including NutriChoice 5 Grain biscuits, and unveiled a new
corporate identity - 'Eat Healthy, Think Better' - in 1997. Britannia has also launched a
new range of breakfast products. The Healthy Start breakfast range will include
traditional Indian breakfast products, multi-grain products and strawberry flavoured
porridge.
Britannia's strategy of organically expanding its nationwide presence, its innovative
approach to products and marketing and its commitment to further growth through
mergers and acquisitions have proved effective in generating strong top-line growth: the
company's revenues have increased steadily in recent years.
Financial Data
2013 sales: US$970.8mn

PepsiCo India
SWOT Analysis

Strengths

A diverse portfolio of global and instantly recognisable brands appeals to the massive
group of young and aspirational consumers in India.
The financial backing of US parent company PepsiCo facilitates investments in

capacity expansions and product launches.
PepsiCo's decision to absorb most of the increases in raw material costs has helped
it gain ground on market rival Coca-Cola.
Developed marketing capabilities and an extensive distribution network can facilitate

PepsiCo's expansions in the soft drinks and confectionery sub-sectors.
Weaknesses

Undeveloped national supply chain infrastructure continues to make distribution
costly.
High exposure to the carbonates sector means that it faces a challenge in sustaining
its revenue growth amid a growing trend of health consciousness.
Being a relative latecomer to the Indian biscuits market (PepsiCo launched its first
biscuits brand Aliva in the country in June 2009), PepsiCo could face hurdles in
building a significant market foothold against stiff competition from domestic and
multinational confectioners.
Opportunities

PepsiCo's plan to invest US$5.5mn into India by 2020 will help develop supply chain
infrastructure as well as increase marketing.
Higher-value non-carbonates offer the strongest long-term opportunities.
Favourable demographics ensure a growing audience, both in terms of numbers and

wealth.
Upstream investments in agricultural processing facilities will aid input cost

management.
A soft drinks joint venture with Tata Tea will provide PepsiCo with a well-established
local partner as it seeks to build its exposure in emerging markets.
PepsiCo India is targeting low-cost packaged water, which is generally sold in

pouches and has a far wider audience than higher priced bottled water ranges.
PepsiCo India continues to launch new products, such as the sugar-free Pepsi Max,
which will attract a wider range of consumers, particularly at the premium end of the
market.
Threats

As with all non-essentials, sales are affected by consumer price sensitivity.
Passing higher prices on to consumers would represent a dramatic about-turn given
the company's recent focus on price cutting.
Constant price wars with rival Coca-Cola put a strain on profit margins.
A relative slowdown in the Indian economy will hurt PepsiCo's revenues.
Further devaluation of the Indian rupee will hurt multinational's balance sheets.
Company Overview
PepsiCo India is the local subsidiary of US major PepsiCo. The company is the second
largest player in the Indian soft drinks market. Like rival Coca Cola, PepsiCo is active
across a diverse range of beverage sub-sectors, while it is also present in the snack
foods subsector via its Frito-Lay India subsidiary.
Strategy
PepsiCo India continues to invest heavily in India, both to prevent Coca-Cola from
building on its existing lead and to prevent smaller market players from threatening the
dominance of the big two. Capacity expansions at existing sites and new greenfield
facilities are a priority, while greater investment in supply chain efficiency, market
infrastructure (ie, coolers and shelving units), and research and development are also
key elements of its expansion strategy.
In November 2013, PepsiCo announced that it would invest $5.5bn into India by 2020.
The investment will go into all forms of the company's Indian business, particularly
concentrating on improving vertical integration as a result of ongoing problems
pertaining to Indian infrastructure. Agriculture, infrastructure development and
manufacturing will account for about three-quarters of the total, with only one quarter
earmarked from product innovation and marketing.
PepsiCo has used partnerships within India to good effect. The most important is
arguably its joint venture with Tata Tea, which was announced in April 2010. This has
given PepsiCo access to a vast distribution network and a strong local brand name.
PepsiCo has made active steps towards stealing soft drinks market share from the
current number one, Coca-Cola.
In addition to continuing to build on its dominance in the Indian soft drinks sector,
PepsiCo now wants to up its game in the domestic confectionery and snack foods
market. Earlier this year the company was exploring an offer for Balaji Wafers, a Rajkot-
based manufacturer of potato chips.
However, PepsiCo could find itself at the losing end of the Indian biscuit war given the
presence of powerful domestic confectionery players such as Parle Products and
Britannia Industries, which already benefit from local market expertise. Consumer tastes
in India are strongly localised and unique, and food manufacturers will have to tailor
their product offerings to the local market in order to be successful.
PepsiCo has underperformed recently in its snack foods ventures, with the company's
flagship products Kurkure and Lay's Potato Chips each losing 2-3% of their respective
market shares in 2012. However, its partnership with LT Foods, signed in 2012, as well
as its exploration of a potential deal in Balaji, signals intent to gain ground in the Indian
snacks sector.
Financial Data
Financial year ending December (group sales):

United Breweries
SWOT Analysis

Strengths

Being part of the expansion-oriented UB Group greatly enhances UB's capacity for
brand building and reinvestment.
A diverse brand portfolio allows UB to target both the lower income mass market and
the emerging premium sector, with its product portfolio further diversified following
the Heineken takeover.
UB's dominance in India's beer sector and its robust growth leaves it in a better
position than its beer rivals to capitalise on the premiumisation trend with its
Kingfisher Ultra and Heineken beer brands.
A local heritage should help UB avoid the negative price connotations associated with
international brands in this price-sensitive market.
A strong local brand heritage should help UB offset international competition.

Weaknesses

UB will need to continue investing in new product launches and building its market
presence before it can fully benefit from the growing premiumisation trend,
particularly with current incomes remaining at very low levels.
An overarching reliance on the Indian beer market leaves UB particularly vulnerable to

demand fluctuations.
Existing low incomes in India means that UB still faces a relatively small consumer
base than some of the regional brewers.
High taxation on beer products in India means that for many consumers it is too
expensive to purchase regularly.
Opportunities

Two-way sales opportunities are important for UB, with Kingfisher representing a
premium brand internationally despite having a lower price domestically.
UB could leverage on Heineken's distribution network to gain improved access to its

export markets.
Increasing consumer affluence will encourage a growing number of consumers to

trade up to UB's higher-value brands over the long term.
Current per capita consumption of beer is one of the lowest in the world, resulting in
significant room for growth
Threats

Dealing with the red tape associated with individual state-by-state transportation and
taxation laws makes distribution challenging and time consuming.
Distribution remains a challenge in India, and few brands have a truly nationwide
presence.
There are limited opportunities for growth through premiumisation at present, due to
low disposable incomes of most of the population.
Company Overview
UB is the main brewer of alcoholic drinks major UB Group. The company is the local
market leader with a share of around 55% obtained primarily through its flagship
Kingfisher brand. Kingfisher has also proved popular internationally and represents a
key export product for the company. Heineken holds a 40.7% stake in UB. It acquired it
in its asset split with Danish firm Carlsberg following the two brewers' acquisition of
former-UB stakeholder Scottish & Newcastle.
Strategy
India's leading brewer UB is set for dynamic growth both in the near term and over the
long run. Volume gains and product capacity expansion remain at the heart of UB's
growth strategy in the near term as it builds its foothold in the mass-market segment of
the Indian alcoholic drinks industry. Longer-term, UB will sharpen its focus on value
growth as affluence and demand for premium products rises.
With premiumisation having some way to go before it becomes fully entrenched among
Indian consumers, mass-market volume gains will continue to form the bulk of UB's
revenues in the near term. In recent years, UB has continued to gain ground on its
strongest competitor, SABMiller India, and is now estimated to have a market share of
55%, which compares very favourably with SABMiller India's market share of 23%.
A large population and a vast low-to-middle class underlines the abundance of
opportunities in the mass-market segment of the alcoholic drinks market, and UB's
market dominance means that it is in pole position to capitalise. Food staples and basic
essentials still form a large chunk of Indian household budgets, and rising incomes
among the lower-tier households will very likely continue to deliver steady advances in
UB's mass-market sales growth.
Given UB's portfolio diversification ambitions, expansions in product capacities will
remain central to UB's near-term growth strategy as well. Capacity expansion also has
the added benefit of allowing UB to avoid the high import taxes that are applicable to
alcoholic drinks in India. Import duties in the country start at 150%, and state taxes can
increase the price of a bottle by another 150% or more. By expanding its domestic
production capacity, UB will be able to circumvent the high import taxes and thus lift its
profit margins.
While we see massive growth opportunities at the lower spectrum of the alcoholic
drinks market, we expect UB to gradually reshape its product portfolio towards the
premium end of the market. Prolific wealth accrual over the next few years, buoyed by
the country's strong economic momentum, will lay the groundwork for the calibration of
consumption habits towards the premium end and prompt an increasing number of
consumers to graduate to higher-priced, better tasting brands.
UB's recent move to locally brew and position Heineken at the higher end of the market
represents a step in this strategic direction as it readies itself for the re-emergence of
strong premiumisation momentum in the country.
Over the longer term, UB is likely to join the fledgling trend of emerging-market-based
companies looking outward for new and more profitable growth opportunities. With
UB's current market share of 55% and intensifying competition from multinational
brewers such as Asia Pacific Breweries, AB InBev and Carlsberg India, opportunities for
gaining market share in India are quickly depleting, and UB will need to look further
afield for sustainable long-term growth prospects.
We hold the view that multinationals with a balanced developed and emerging market
(EM) geographic footprint are best positioned for growth. EMs will remain major
attractions for multinationals because they hold the vital ingredients for growth such as
dynamic economic expansion, urbanisation and rising GDP per capita, but developed
markets offer the prospect of stable earnings that would be difficult to achieve in EMs.
UB is entrenching itself in the high-consuming developed markets such as the US and
the UK as well as EMs, and UB's commitment to reshaping its product portfolio
towards the premium end arguably leaves it in the best possible position to achieve this
aim.
Financial Data
2013 net sales: US$716.9mn

Coca-Cola India
SWOT Analysis

Strengths

A diverse portfolio of global and instantly recognisable brands appeals to the massive
group of young and aspirational consumers in India.
The parent company's announcement that India is a key target should ensure high
investment levels in the country.
An independent retail sales team greatly enhances distribution of Coca-Cola brands.
Consolidating bottler activities and taking majority ownership of more operations

would allow Coca-Cola better control over its marketing direction, and would boost
efficiency.
Coca-Cola continues to be the market leader in the soft drinks industry despite strong
competition and continued investments by PepsiCo.
Weaknesses

As with all non-essential consumer goods products, Coca-Cola's sales are affected
by the price sensitivity of the majority of Indian consumers.
Coca-Cola India's decision to pass on cost increases to local consumers has allowed
PepsiCo to catch up.
Coca-Cola India has had to continually make major investments to protect its market
share.
Growing health awareness over the long-term could result in declining sales
opportunities for Coca-Cola.
Opportunities

Healthier, higher-value non-carbonated soft drinks represent the strongest long-term
growth opportunities and also carry higher margins - Coca-Cola has recently
launched a number of these, such as its Burn energy drink and lemon juice drink
Nimbu Fresh.
Key benefits of the new distribution and manufacturing model could include
streamlined supply chain infrastructure and delivery systems, greater economies of
scale and improved profit margins, thus enhancing its capacity to invest.
Coca-Cola can further leverage its existing distribution network to entrench itself
deeper among the country's rural consumer bases.
Threats

PepsiCo has announced plans to expand via acquisitions in the non-carbonates
sector, which could threaten Coca-Cola's market share in these sub-sectors.
Constant price wars with rival PepsiCo put a major strain on profit margins.
Further devaluation of the Indian rupee will hurt multinationals' balance sheets.
Company Overview
Coca-Cola India, the local subsidiary of US soft drinks giant The Coca-Cola Company,
is the market leader in India's soft drinks industry. It operates across all soft drinks
sectors in the country, including carbonated soft drinks, fruit juices, energy drinks and
bottled water.
Strategy
With its eyes firmly on the highly attractive Indian market, The Coca-Cola Company
plans to leverage on its franchise partnerships in the country as it seeks to uphold its
long-term sales and earnings outlook. The company has reportedly started discussions
with independent franchisee bottlers in India over the implementation of a new
distribution and manufacturing model that it currently follows in China. The company is
currently in the middle of a three-year US$4bn investment programme and has pledged
a further US$4bn to be used between 2015 and 2017.
Following the success of its distribution and manufacturing model in China, which
involves the pooling of investments by franchisees and the setting up of common
manufacturing facilities, it is not surprising that Coca-Cola wishes to implement a similar
model in India with hopes of lifting its capital expenditure efficiencies in the Indian
market.
However, Coca-Cola's success story in China could be difficult to repeat in India given
the vast supply chain differences between the two countries. With a growing organised
retail sector in China, Coca-Cola could establish a nationwide presence through
relationships with just a few key retailers. However, due to the highly fragmented nature
of India's retail sector, Coca-Cola's franchisees will have to establish relationships with
multiple independent retailers in order to achieve the nationwide footprint necessary to
fully capitalise on the drink sector's attractive growth prospects.
Coca-Cola, has failed to capture the Indian market in the same way it has elsewhere. As
a result, has been and continues to engage in a loss-making strategy in order to
increase the popularity of its flagship beverage.
Until summer 2013, the most popular carbonated soft drink in India was Thums Up
cola, a drink introduced in the 1970s following Coca-Cola's withdrawal from the
country. Thums Up is now owned by Coca-Cola, having been bought by the company
upon its re-entry into the market in the 1990s. While the company markets the Coca-
Cola brand within the country, consumers' taste for Thums Up has endured despite
efforts to establish its own-brand beverage. Coca-Cola is also less popular than
PepsiCo's Pepsi, leaving Coca-Cola fourth place in the Indian carbonated drinks
market.
Meanwhile, Coca-Cola India will extend its joint venture, closely following global rival
PepsiCo's announcement of a joint venture with Tata Tea (the local tea subsidiary of
Indian conglomerate Tata Group). Coca-Cola's move to extend its tea-market
partnership with Nestl clearly marks another step towards protecting its Indian market
share in the long-running and fierce market-share battle. Both companies have
continued to match each other blow for blow in terms of product development, capacity
increases and price cuts as they work to consolidate their foothold in the highly
profitable Indian market.
Financial Data
2012 net income: $9.01bn
SABMiller India
SWOT Analysis

Strengths

SABMiller has created a diverse product portfolio with a range of beers spanning from
premium to economy, thus capturing a wide range of consumers in this high-growth
beer market.
SABMiller's market is spread over a wide geography, with its 10 breweries

strategically located across the country.
India represents a high-growth asset in SABMiller's portfolio, and thus the Indian
subsidiary is likely to receive strong attention and investment from the parent
company as the latter seeks to benefit from the emerging market growth story.
Weaknesses

SABMiller India has invested heavily in its marketing and advertising campaigns and
will have to continue doing so as it launches new products, thus weighing on its
profitability.
Focus on value gains in the Indian beer market means that SABMiller will face
difficulties in securing its market share in the mass-market given existing low incomes
in India.
SABMiller faces an uphill battle in trying to take market share from the dominating
United Breweries.
Opportunities

India's beer market is one of the most attractive in the world, with SABMiller strongly
positioned to take advantage of the forecast growth.
As disposable incomes continue to rise and a middle class emerges, the market for
SABMiller's products will continue to grow.
By having a broad product portfolio that includes both premium and economy
brands, SABMiller is well positioned to achieve growth across the different market
ranges.
SABMiller has strong exposure across emerging markets and will leverage on such
experience and coverage within India.
Threats

Owing to India's complicated state-by-state taxation and distribution laws, generally
high taxes and minimum control over retail pricing, SABMiller's strong market share
has not translated into strong profitability.
SABMiller faces strong competition from both local and international brewers, such as
UB, who are willing to invest aggressively to gain a greater share of the local beer
market.
Major pockets of poverty still exist, particularly in rural areas, meaning that a large
percentage of the population is not a potential market.
Company Overview
Anglo-South African brewer SABMiller is one of the world's largest brewers, with
brewing interests and distribution agreements in more than 60 countries. It entered the
Indian market in 2000 through a joint venture and its later acquisition of the Narag
breweries, and has subsequently made several more acquisitions, most notably its 2001
purchase of the Mysore Breweries and its Knock Out brand, followed by the 2003
acquisition of Shaw Wallace's beer brands Royal Challenge and Haywards. Having
established its presence in India and holding around 23% of the beer market, SABMiller
is now looking to extend its current market share through further investments.
Strategy
Rather than engaging in a market share battle with leader United Breweries through
price competition - a common strategy employed by brewers in anchoring long-term
profitability - SABMiller India is trying a different tactic. The brewer is looking to build a
strong foothold in the more profitable Indian states of Maharashtra, Karnataka, Haryana
and Rajasthan instead of consolidating mass-market volume sales across the country.
SABMiller India's growth strategy sets it apart from its major competitor UB. While UB
also has an eye on the emerging premiumisation opportunity in India and will continue
to expand its premium beer portfolio to further consolidate its leading position, the
brewer retains a strong focus on growing its market share in both the low-income
mass-market and the premium beer sector. The firm's diverse brand portfolio puts it in
a sturdy position to achieve this goal. SABMiller's motive can be linked to the long-term
outlook for the country's beer sector.
While the country's large low-income population means that economy-priced beers
remain popular, over the longer term consumers are likely to graduate to better tasting
brands. By entrenching its premium brands among Indian consumers and targeting the
higher-end markets, the brewer could face relative ease in building up its market share
as consumer affluence increases. With significant investments of around US$1bn
already ploughed into India as part of SABMiller's emerging market growth strategy,
according to an SABMiller spokesperson, it could also be suggested that shareholders
are starting to look for some return on that investment, which a price-focused scrap at
the bottom of the market is unlikely to offer, at least in the short term.
Recent reports suggest that SABMiller is reconsidering its emerging market priorities,
with ongoing regulatory frustrations in India appearing to have pushed the company to
prioritise investments in Latin America, China and, in particular, Africa.
Financial Data
For financial year ending March (Asia sales):

RPG Retail
SWOT Analysis

Strengths

A diverse multi-format retail offering allows the company to cater to a wide range of
Indian consumers and shopping occasions.
Local market knowledge gives it an advantage over international retailers arriving in

India.
RPG has not accrued great debts to finance its growth, and this strong financial
capacity will leave it poised for future expansionary investments in the country.
Weaknesses

With such a diverse range of business interests, there are fears that the RPG
conglomerate could lose focus on its retail division should the division start to
underperform.
RPG will have to invest heavily in infrastructure and not just new store openings if it is
to almost quadruple its Indian city presence at the rate it is targeting.
Existing low incomes in India means there is only a limited appetite for RPG's modern
retail stores.
Opportunities

A commitment to private labelling is likely to broaden RPG's appeal among price-
sensitive, though modern-retail-susceptible, consumers.
Added-value products and services will improve loyalty among India's growing
aspirational middle classes.
RPG can leverage its local knowledge to tailor offerings specifically.
The mass grocery retail sector is set to experience phenomenal growth, and RPG is
set to be a major beneficiary with its wide and diverse store network.
Threats

Widespread poverty and the country's size and regional diversity act as impediments
to the development of the mass grocery retail sector and keep the consumer base
small.
Fast-expanding multinationals could undermine RPG's gradually built-up market

share.
RPG's hypermarket division requires significant further growth, which means

enormous long-term outlay by the company.
The inevitable entry of multinationals and their massive investment potential could
seriously undermine RPG's growth plans, with such investments already under way.
Company Overview
RPG Enterprises operates four grocery retail networks - Daily, Express, Super and
Hyper - under the Spencer's banner. The firm - part of leading Indian conglomerate
RPG Group - also operates Music World music stores and Books and Beyond books,
gifts and stationery outlets in the country. Commencing retail operations in 1996, RPG
parted ways with its retail partner Hong Kong's Dairy Farm International in 2005; for
RPG, this meant the rebranding of the Foodworld supermarkets that it returned to its
Spencer's grocery retail banner.
Strategy
RPG plans to invest a total of US$628mn in expanding its existing retail operations and
rationalising its four-format grocery retail offering into three clear-cut brands. RPG is
likely to drop one of its mid-sized formats to retain one large-scale, one medium and
one smaller convenience format. Expansion is also integral to the firm's plans, and it is
looking to build its presence from 32 cities currently to 119. Expansion in terms of store
numbers is not RPG's sole aim; the company will also look to continually improve its
existing offerings by adding extra in-store services, as well as investing in information
technologies for its supply chain and logistics. These expansions will very likely leave
RPG in a good position to benefit from the ongoing spread of modern retail in India.
Indeed, although modern retail currently accounts for only a small part of overall grocery
retail sales in India, there are going to be tremendous opportunities for growth given the
underdeveloped nature of the Indian mass grocery retail sector. As affluence in India
rises steadily over the coming years, consumers are expected to increase their
spending and turn to modern retail formats in search of the convenience and quality
that they now desire and can increasingly afford, which in turn presents very positive
implications for mass grocery retail sales.
Financial Data

2013 sales: US$718.7mn (BMI estimate)
Pantaloon Retail India
SWOT Analysis

Strengths

Rapid expansion prior to the arrival of multinationals allows relatively free access to
India's wealthiest towns and cities.
Continued innovation and expansion of its product offerings could help Pantaloon
secure a stronger market share.
Pantaloon's lower-value private-label offerings will very likely garner strong appeal
among Indian consumers and support its ambitions of building up a stronger market
share.
A multi-format operation allows Pantaloon to cater to a wider range of Indian

consumers and a broader range of shopping needs.
Weaknesses

With India as its sole location, Pantaloon is unable to call on profits from elsewhere to
fund Indian expansion and is dependent on remaining profitable.
Remaining profitable and pursuing expansion are challenging in a price-sensitive

market.
The retailer's ambitious expansion plans will require major investment into distribution
and new stores.
Opportunities

Discount stores provide access to lower-income groups.
Convenience stores allow for expansion opportunities once major towns and cities
start to crowd, in line with current development rates.
A rural retailing partnership with Godrej's Aadhar network will give the company very
early, competition-free access to an enormously promising sub-sector.
By seeking non-food partnerships with international firms, Pantaloon will very likely be
able to ensure that it retains capital for investing in its grocery operations.
By being among the first to establish a multi-format grocery network and a multi-
tiered private-label range, Pantaloon can position itself at the forefront of domestic
retail innovation.
Threats

Since foreign direct investment regulations have been relaxed and multinationals are
arriving in the market, Pantaloon can expect to have its market share pressured and
could even become a takeover target.
Pantaloon needs to find efficiencies and improved funding if it is to sustain this pace
of growth and ward off the threat of increased competition.
Company Overview
Pantaloon is India's largest diversified retail company, operating an extensive range of
food and non-food retail interests. Pantaloon operates grocery retail outlets under the
Big Bazaar hypermarket, Food Bazaar supermarket, Value discount store and KB's Fair
Price supermarket banners. In addition, it has a number of non-grocery retail interests,
including a chain of Pantaloon-branded department stores and fashion, consumer
electronics, beauty and general merchandise outlets. Its operations currently cover 80
cities.
Strategy
Pantaloon Retail, the leading mass grocery retail player in India, is likely to look forward
to years of strong growth. Increasing affluence in India over the coming decade will
encourage more consumers to turn to modern retail formats in search of the
convenience and quality they now desire and can increasingly afford. This will mean a
rapidly growing appetite for Pantaloon's modern retail offerings. On another positive
note, Pantaloon's continued expansionary activities, in terms of product development
and store expansion, as well as improving distribution infrastructure, will provide the
retailer a stronger platform to leverage the growth prospects of the Indian mass grocery
retail sector.
By being among the early mass grocery retail players to establish a multi-format grocery
network and a multi-tiered private-label range, Pantaloon can position itself at the
forefront of the domestic retail spending boom. Rapidly growing consumer affluence in
India is expected to have a strong effect on the domestic sector, with consumers
increasingly equipped with the purchasing power to trade up to higher-value modern
retailing formats. We believe the massive breadth of Pantaloon's brand portfolio and the
retailer's strong expansionary focus will put it in a particularly strong position to cater to
a broader range of shopping needs and exploit the country's dynamic mass grocery
retail growth.
While these planned expansions are supportive of higher sales growth, funding will be a
key challenge for Pantaloon. In spite of the explosive growth seen in recent years,
Indian organised grocery retail remains a high-outlay, low-return business. India's vast
geography means that new openings often need to be accompanied by expensive
supply chain investments; the openings themselves do not typically provide any short-
term opportunity to rake back this outlay due to the low pricing models that must be
employed in order to get customers through the doors. Moreover, despite enjoying
strong sales, Pantaloon's profits remain low, and internal cash generation is not
sufficient to support the retailer's ambitious growth plans. By hiving off its mass grocery
retail business to Future Value, this raises the prospect of a separate equity listing for
Future Value, which facilitates capital-raising to fund Pantaloon's expansion plans.
Besides expanding store space, continued innovation and expansion of its product
offerings will remain another priority for Pantaloon. In line with increasing purchasing
power, purchasing determinants such as product quality, product variety, and
conduciveness of shopping environment will continue to grow in prominence over the
coming years. With this in mind, Pantaloon will retain a strong focus on improving the
variety of its product assortments at its Big Bazaar and Food Bazaar outlets, such as
including more ethnic brands tailored to local consumer tastes.
Expanding its fresh grocery produce and private-label offerings are key focus areas in
this regard. As consumers familiarise themselves with modern retail formats and as
modern retailers improve their efficiencies in fresh food distribution, consumers are
increasingly relying on modern retail stores to meet their fresh food needs, implying
growing demand for Pantaloon's fresh food produce.
Meanwhile, Pantaloon will also work on strengthening its private brands portfolio, which
encompasses brands such as Tasty Treat breakfast cereals and Premium Harvest rice.
With incomes remaining low in India, Pantaloon's lower-value private-label offerings are
likely to garner strong appeal among Indian consumers and support its ambitions of
building up a stronger market share.
Of course, continued investments in distribution will also be pivotal to securing a sturdy
foothold in the Indian mass grocery retail market, given that the country's inadequate
distribution infrastructure remains a major limiting factor behind domestic retailers'
expansions. On this front, Pantaloon's extensive distribution network, which is
structured with 12 transportation hubs across India, is a major competitive advantage,
in our opinion. Pantaloon is expected to continue committing investments to improving
its supply chain efficiencies - a strategy that is likely to entrench its footprint deeper into
the sector.
Despite the aforementioned merits we see in Pantaloon's growth strategy, the entry of
multinationals in the Indian mass grocery retail sector poses a very real threat to the
retailer's market share. Since foreign direct investment regulations have been relaxed
and multinationals are arriving in the market, Pantaloon can expect to have its market
share pressured and could even become a takeover target. Although Pantaloon has
sought to counteract the inevitable entry of multinationals by putting itself forward as a
possible partner for foreign investors, with a tie-up with Carrefour rumoured, the
massive financial clout and expansionary ambitions of big mass grocery retail players
such as Walmart, Tesco and Carrefour will clearly threaten Pantaloon's market share
should they enter the market.
Global Industry Overview
The final quarter of 2013 was largely characterised by improving confidence in the West. Sentiment in the
US and UK in particular has continued to perk up, which is likely to bode particularly well for discretionary
food and drink companies. By comparison, emerging markets as a group were less exciting than they have
been for much of the past few years, as a combination of economic slowdowns and challenging regulatory
developments affected companies in China and Turkey in particular.
Improving Confidence In The US
US - University Of Michigan Index Of Consumer Sentiment
Source: Bloomberg, BMI
Expected To Remain Largely Steady In Q114
Selected Commodity Prices Rebased
Note January 2 2013 = 100. Source: Bloomberg, BMI
The prices of key grains fell through the course of 2013, as the second chart illustrates. This, of course, has
been very good for the global food processing industry. Our Agribusiness team expects prices to remain
steady over the first quarter of 2014, and food companies will therefore benefit from the easing in cost
pressure, with potential to devote more resources to brand-building initiatives as the improving global
economy gives them more to work with.
UK Improving
The outlook for economies across much of Western Europe improved through the course of Q413. We
believe UK company Whitbread is poised to do well off the back of this recovery. It owns the successful
Costa Coffee chain, which has more outlets in the UK than any of its main rivals, including Starbucks and
Caff Nero. Whitbread reported another strong set of quarterly numbers for the period to November 2013,
with like-for-like sales increasing 4.3% year-on-year. Sales at Costa were up by more than 20% to
GBP882mn.
Following the release of Christmas trading results for many of the UK's major grocery retailers, we believe
that the 'big four' of Tesco, Sainsbury's, Walmart-owned Asda and Morrisons will begin to make ground
on the top- and bottom-end retailers in 2014. As real wages begin to rise and inflation edges lower in 2014,
the big four look well placed to take some market share away from the top- and bottom-end retailers. Our
forecasts suggest that between 2014 and 2018, supermarket and hypermarket sales will grow by 13.9% and
14.8% respectively, compared with the industry average of 11.2% growth.
Rising Confidence Will Aid Retail
UK - Consumer Confidence & Selected Companies' Revenue Growth (semi-annual, % y-o-y)
Source: Company reports, Bloomberg, BMI
Food Safety Concerns Will Continue To Affect Consumption
Food safety is a sensitive issue in China, where the 2008 melamine dairy scandal in particular deeply
affected the dairy industry and will arguably leave lasting impressions on Chinese consumers for years to
come. China's dairy sector continued to attract a lot of attention in Q413, with Danone, Fonterra and
Japan's Meiji three of the more high-profile companies in the news.
Meiji is the latest example of a foreign company facing difficulties in the Chinese dairy market,
withdrawing in October 2013. The firm said costs from importing Australian milk powder were too great to
continue operating in the country. The Japanese firm has had to import its milk from Australia since 2010,
when a foot-and-mouth outbreak damaged local supply. Danone also has had some issues in the country
following the recall of some of its products earlier in 2013 following a scare that has proven to be
unfounded and caused by its supplier, Fonterra.
Craft Beer To Outperform
After a buoyant first half of 2013, in which sales rose 13% in volume terms and 15% in value terms,
according to the Brewers Association, the US craft beer industry looks set to keep performing strongly over
the next few years. While Americans are drinking less mainstream beer on average, the wider beer industry
seems to have been re-invigorated by the success of craft beer, which as an industry has arguably done a
much better job in capturing the evolution of consumers' tastes and preferences.
The popularity of craft beer, which first came to prominence in the late 1980s, can to some extent be
attributed to brewers' success in finding a receptive audience among US beer drinkers. These consumers had
previously been offered a fairly limited choice of mild-tasting lager by many of the mainstream brewers,
and beer drinkers seem to have welcomed the variety offered by craft brewers. We also note that the
declining appeal of mainstream beer has benefited the wider spirits and wine industries.
Where The Action Is
Mid-Year Craft Production Volumes, 2009-2013 (mn barrels), 2009-2013
Source: Brewers Association, Bloomberg, BMI
On a per capita basis, beer consumption in the US has been declining for a number of years. The ability of
craft beer to register sales growth despite this trend reflects its favourable performance. Declines in per
capita consumption is also a dynamic in a number of countries in Western Europe, and the trend in the US is
even more pronounced given that the population continues to grow at quite a healthy rate (which is unusual
for much of the developed Western world).
Fundamental Decline In Mainstream Beer
United States Beer Consumption, 2008-2018 (litres per capita)
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
e
2
0
1
4
f
2
0
1
5
f
2
0
1
6
f
2
0
1
7
f
2
0
1
8
f
75
77.5
80
f = BMI forecast. Source: Beer Institute, Trade press, BMI
Consolidation In The Global Alcohol Industry
The new chief executive of drinks firm SABMiller, Alan Clark, said in September 2013 that the
consolidation wave that has been a key feature in the global beer market over the past 15 or so years has
some legs left in it yet. In our view, there are still opportunities for bolt-on acquisitions in alcohol,
particularly in China, where there is room for consolidation in both the beer and spirits sectors (though
spirits might be more difficult).
China is also at the cornerstone of Carlsberg's Asia strategy, and it was announced in December 2013 that
it had increased its stake in Chongqing Brewery to 60%. Carlsberg is among the top five beer companies
by volume in China, behind multinationals such as SABMiller and Anheuser-Busch InBev and some
domestic companies. Carlsberg is particularly strong in western China, where beer consumption remains
relatively low. Carlsberg has carved out a promising niche for itself as part of its wider business in Asia,
which is set to include greater investment into Myanmar and India.
We believe that there are still opportunities for consolidation in global alcohol, even if the vast majority of
the main deals have already taken place. We see most of this consolidation focused on Asia, with China
probably remaining the main centre of inbound mergers and acquisition investment. Asia accounts for about
20% of Carlsberg's annual sales, and the company will very likely look to push this contribution to more
than 30% to compensate for the ongoing weakness of beer markets across Europe. On the acquisition front,
Carlsberg could target Chinese companies such as Beijing Yanjing Brewery or Tsingtao Brewery.
Governments Taxing Alcohol
The increase in alcohol taxes is a core dynamic in the food and drink industry. Turkey's alcoholic drinks
sector suffered another setback in January following the decision by Prime Minister Recep Tayyip
Erdogan's government to impose a 10% tax rise on sales of all forms of alcohol. Such a move will further
damage the sector, which is still reeling from the introduction of strict anti-alcohol laws in May 2013.
Under the new legislation, all alcoholic drink sales in Turkey will now be subject to a 10% tax increase,
along with tax hikes for cigarettes, cars and mobile phones. The broad-sweeping hike is an attempt to curb
rising inflation in the country and the ongoing depreciation of the Turkish lira. As opposed to the changes
announced in May 2013, such a tax hike does not appear to be wholly targeted at alcohol consumption, and
the industry will be hoping that a U-turn may be taken by government later on in 2014. Nevertheless, such a
move will severely damage alcoholic drink sales in the country, which have already been hurt by a Turkish
economic slowdown and policy changes announced in the middle of 2013.
In May 2013, Erdogan's government implemented an anti-alcohol bill that prohibits the sale of alcohol
between 10pm and 6am, bans sponsorship from alcohol companies, and places other restrictions on
companies' marketing. Anadolu Group, which owns the country's most popular beer brand through Efes
Beverage Group, has seen its share price stuck in a downward spiral since the announcement. Sales of Efes
account for 90% of total beer sales in Turkey, and only Turk Tuborg, which predominantly imports
foreign beer for domestic sale, is another notable Turkish brewer.
Major Western European Food Retailers Trying To Fix Business At Home
If the era leading up to the global financial crisis in 2008 was characterised by international expansion, with
Tesco playing a particularly prominent role under former CEO Sir Terry Leahy, the past two or three years
in particular have necessitated a major shift in strategy for both Tesco and France's Carrefour, the second
and third biggest food retailers globally.
Tesco has been under pressure from shareholders to address structural shortcomings exposed by the
landmark profit warning it announced in January 2012. This was the moment it became clear that the
retailer had to focus a lot more attention on its domestic operations. The inevitable fall guy would be part of
the international business, with the failed US Fresh & Easy business the obvious target.
Resurrecting its UK business and ultimately clawing back some of the market share that it has ceded to
rivals in the ultra-competitive UK retailing landscape is going to take longer for Tesco than some observers
might have hoped.
However, despite the issues Tesco is facing at home, it still needs to capitalise on growth opportunities
abroad when it can identify them. Indeed, the retailer has been first out of the blocks in India after the retail
sector was opened up to foreign companies; Tesco announced in December 2013 that it was awaiting the
go-ahead to invest US$110mn in a joint venture with the Tata Group conglomerate. India is ultimately
going to be an enormous opportunity, and even if the UK is the short-term priority, India's potential cannot
be ignored. Tesco will be joining forces with multinational Tata, which has a strong track record working
with foreign multinationals in joint ventures, with recent examples including Starbucks.
The big three global food retailers Walmart (until recently), Carrefour and Tesco have traditionally operated
wholesale businesses in India. In the aftermath of the 2012 reform announcement, they have mainly focused
on trying to get a better grip on the unique requirements of operating in India, while likely also trying to
lobby the government to make the proposition more attractive.
India is fundamentally an attractive market given the current dominance of mom-and-pop-type stores and
the fact that retail sales are growing from a reasonably low base. Over the past few months, India made
some small concessions that it hopes will make its food retail sector more attractive.
Recent amendments include stipulating that half of the first US$100mn invested in the first three years has
to be directed to back-end infrastructure. Restrictions on what type of local suppliers can be used have also
been relaxed, allowing retailers to maintain suppliers that generate more than US$2mn in assets, which was
not permitted in the original stipulations. These small suppliers must account for about 30% of overall
supplies. Previously, once a supplier grew past US$1mn in assets, it could not be retained. By comparison,
single-brand retailers such as IKEA do not face the vast majority of these hurdles, meaning there is still a
major and perhaps unique distinction made by India between single- and multi-brand retailers.
Potential Impact Of Government Legislation
We reported in December 2013 that a recently published research paper has put the spotlight back onto the
risks associated with energy drinks, causing Monster Beverages, the largest public energy drinks company
in the world, to issue a statement defending its practices.
A team from the University of Bonn in Germany argued that energy drinks can change the way the heart
beats. As such, it recommends that children and people with certain health conditions should avoid such
drinks altogether. The report is the most recent development in a long battle between energy drinks
companies and their detractors, with the controversy coming to a head in the middle of 2012 following the
death of a 14-year-old girl. The related lawsuit against Monster attributed no responsibility to the energy
drinks manufacturer; however, investor confidence was seriously dented, causing the company's share price
to fall considerably at the time. Rumblings still persist over the health implications of energy drink
consumption, with UK retailer Morrisons banning the sale of such drinks to consumers younger than 16.
Monster, which is the market leader for energy drinks in the US, has called the university's report 'alarmist
and misleading'. The company goes on to argue that the conclusion reached by the scientists is not wholly
accurate, and that mistakes are made in the report. Though this report will add fuel to the ongoing
controversy, we doubt that the public will have any significant response in terms of energy drink
consumption. Indeed, we believe the functional drinks segment, which includes energy drinks, will
outperform in terms of global soft drinks consumption.
Premium Whisky An Outperformer
A new long-term view introduced in this overview relates to premium whisky, which has been one of global
alcohol's best performing areas over the past few years. Investment into Irish and Scottish distilleries in
particular has been picking up, driven in large part by booming demand for luxury spirits in emerging
markets, most notably China. It is no surprise that global spirits behemoths Diageo and Pernod Ricard are
ramping up investment into whisky. Premium blends of Scotch whisky are particularly popular in countries
such as China and India.
Another key growth area for whisky is the US, where Irish whiskey is performing particularly well. Irish
whiskey's growth in the US comes at a time when spirit sales in general are growing strongly, with younger
consumers in particular increasingly opting for spirits over beer. Irish whiskey is particularly well suited to
this target market, with its smooth and light taste (in comparison with Scotch) making it more suitable as a
mixer in cocktails. This is a trait it shares with US bourbons, but Irish whiskey is generally less sweet,
marking a clear point of difference and preventing it from simply being seen as a bourbon alternative. In
addition, the country's large American-Irish population of more than 35mn offers a great impetus to Irish
whiskey sales.
Table: Food And Drink Core Views
Short-Term Outlook
Grain prices are expected to remain steady over the first quarter of 2014.
Consumer sentiment in Western Europe and the US expected to continue improving through 2014.
Discount retailing will continue to outperform supermarkets and hypermarkets across Europe in 2014.

Long-Term Outlook
Companies with strong emerging market exposure will largely continue to outperform in sales growth, although the best
opportunities may now be beyond the BRIC countries of Brazil, Russia, India and China.
Multinationals will increasingly pursue opportunities in frontier markets.
Provenance will become increasingly important, particularly in Western Europe following the 2013 horsemeat scandal.
Emerging-market-based firms will increasingly pursue developed-market investments for the purposes of diversification
and access to stellar brands.
Private equity interest in food and drink companies in frontier regions such as Sub-Saharan Africa will increase.
Hypermarkets will underperform in developed markets, where convenience, discount and online retailing are the
strongest opportunities.
Conversely, hypermarkets remain a great opportunity in less developed retail markets, particularly adjacent to shopping
centres/malls.
Investment in innovation will increase as producers seek differentiation; emphasis will be placed on protecting
innovations.
Bottled water, juices and energy drinks will be outperformers in global soft drinks.
Government legislation will play an increasing role in marginalising unhealthy food and beverage products.
Governments will increasingly pursue alcohol as an effective means of raising revenue through higher taxes.
Whisky, particularly Scotch whisky, will be an outperformer in global premium spirits.
Functional foods and energy drinks will provide considerable opportunities globally.
Source: Bloomberg, BMI
Demographic Forecast
Demographic Outlook
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is
the total population of a country a key variable in consumer demand, but an understanding of the
demographic profile is key to understanding issues ranging from future population trends to productivity
growth and government spending requirements.
The accompanying charts detail India's population pyramid for 2013, the change in the structure of the
population between 2013 and 2050 and the total population between 1990 and 2050, as well as life
expectancy. The tables show key datapoints from all of these charts, in addition to important metrics
including the dependency ratio and the urban/rural split.
Population Pyramid
2013 (LHS) And 2013 Versus 2050 (RHS)
Source: World Bank, UN, BMI
Population Indicators
Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050
Source: World Bank, UN, BMI
Table: India's Population By Age Group, 1990-2020 ('000)

1990 1995 2000 2005 2010 2013e 2015f 2020f
Total 868,891 955,804 1,042,262 1,127,144 1,205,625 1,252,140 1,282,390 1,353,305
0-4 years 119,128 121,642 122,974 124,552 121,283 121,815 122,215 120,009
5-9 years 108,259 115,822 118,911 120,733 122,734 120,861 119,757 120,921
10-14 years 98,449 107,119 114,775 117,882 119,748 121,445 121,842 119,004
15-19 years 87,528 97,557 106,216 113,752 116,820 117,998 118,878 121,075
20-24 years 79,720 86,393 96,354 104,804 112,213 114,584 115,610 117,796
25-29 years 70,740 78,515 85,126 94,818 103,103 108,029 110,732 114,277
30-34 years 62,641 69,596 77,269 83,680 93,207 98,325 101,579 109,311
35-39 years 54,313 61,474 68,321 75,792 82,071 87,688 91,634 100,057
40-44 years 41,006 53,031 60,070 66,750 74,075 77,670 80,425 89,964
45-49 years 35,477 39,665 51,380 58,262 64,826 69,298 72,151 78,487
50-54 years 31,490 33,741 37,855 49,168 55,919 59,728 62,428 69,638
55-59 years 26,068 29,169 31,431 35,450 46,288 50,564 52,840 59,151
60-64 years 20,266 23,115 26,099 28,353 32,238 38,205 42,242 48,402
65-69 years 14,560 16,807 19,425 22,191 24,365 25,874 27,827 36,629
70-74 years 9,604 11,008 12,913 15,157 17,566 18,669 19,392 22,292
India's Population By Age Group, 1990-2020 ('000) - Continued

1990 1995 2000 2005 2010 2013e 2015f 2020f
75-79 years 5,517 6,370 7,455 8,921 10,679 11,797 12,469 13,875
80-84 years 2,715 3,082 3,652 4,381 5,374 6,032 6,490 7,650
85-89 years 1,006 1,238 1,450 1,772 2,191 2,496 2,716 3,310
90-94 years 325 362 464 565 717 821 896 1,118
95-99 years 65 87 102 137 175 204 225 282
100+ years 13 14 19 24 33 40 44 58
e/f = BMI estimate/forecast. Source: World Bank, UN, BMI
Table: India's Population By Age Group, 1990-2020 (% of total)

1990 1995 2000 2005 2010 2013e 2015f 2020f
0-4 years 13.71 12.73 11.80 11.05 10.06 9.73 9.53 8.87
5-9 years 12.46 12.12 11.41 10.71 10.18 9.65 9.34 8.94
10-14 years 11.33 11.21 11.01 10.46 9.93 9.70 9.50 8.79
15-19 years 10.07 10.21 10.19 10.09 9.69 9.42 9.27 8.95
20-24 years 9.17 9.04 9.24 9.30 9.31 9.15 9.02 8.70
25-29 years 8.14 8.21 8.17 8.41 8.55 8.63 8.63 8.44
30-34 years 7.21 7.28 7.41 7.42 7.73 7.85 7.92 8.08
35-39 years 6.25 6.43 6.56 6.72 6.81 7.00 7.15 7.39
40-44 years 4.72 5.55 5.76 5.92 6.14 6.20 6.27 6.65
45-49 years 4.08 4.15 4.93 5.17 5.38 5.53 5.63 5.80
50-54 years 3.62 3.53 3.63 4.36 4.64 4.77 4.87 5.15
55-59 years 3.00 3.05 3.02 3.15 3.84 4.04 4.12 4.37
60-64 years 2.33 2.42 2.50 2.52 2.67 3.05 3.29 3.58
65-69 years 1.68 1.76 1.86 1.97 2.02 2.07 2.17 2.71
70-74 years 1.11 1.15 1.24 1.34 1.46 1.49 1.51 1.65
75-79 years 0.63 0.67 0.72 0.79 0.89 0.94 0.97 1.03
80-84 years 0.31 0.32 0.35 0.39 0.45 0.48 0.51 0.57
85-89 years 0.12 0.13 0.14 0.16 0.18 0.20 0.21 0.24
90-94 years 0.04 0.04 0.04 0.05 0.06 0.07 0.07 0.08
95-99 years 0.01 0.01 0.01 0.01 0.01 0.02 0.02 0.02
India's Population By Age Group, 1990-2020 (% of total) - Continued

1990 1995 2000 2005 2010 2013e 2015f 2020f
100+ years 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Table: India's Key Population Ratios, 1990-2020

1990 1995 2000 2005 2010 2013e 2015f 2020f
Dependent ratio, % of total working age 70.6 67.0 62.8 58.6 54.4 52.3 51.1 49.0
Dependent population, total, '000 359,640 383,549 402,140 416,314 424,864 430,051 433,872 445,148
Active population, % of total 58.6 59.9 61.4 63.1 64.8 65.7 66.2 67.1
Active population, total, '000 509,250 572,256 640,122 710,830 780,761 822,088 848,518 908,157
Youth population, % of total working age 64.0 60.2 55.7 51.1 46.6 44.3 42.9 39.6
Youth population, total, '000 325,836 344,582 356,661 363,167 363,764 364,121 363,813 359,934
Pensionable population, % of total
working age 6.6 6.8 7.1 7.5 7.8 8.0 8.3 9.4
Pensionable population, total, '000 33,804 38,966 45,479 53,147 61,100 65,931 70,059 85,214
Table: India's Rural And Urban Population, 1990-2020

1990 1995 2000 2005 2010 2013e 2015f 2020f
Urban population, % of total 25.5 26.6 27.7 29.2 30.9 32.0 32.8 34.8
Rural population, % of total 74.5 73.4 72.3 70.8 69.1 68.0 67.2 65.2
Urban population, total, '000 221,976 254,311 288,363 329,520 372,900 400,998 420,047 471,343
Rural population, total, '000 646,915 701,493 753,899 797,623 832,725 851,142 862,343 881,963
Glossary
Food & Drink
Food Consumption: All four food consumption indicators (food consumption in local currency, food
consumption in US dollar terms, per capita food consumption and food consumption as a percentage of
GDP) relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/
section.
Off-trade: Relates to an item consumed away from the premises on which it was purchased. For example, a
bottle of water bought in a supermarket would count as off-trade, while a bottle of water purchased as part
of a meal in a restaurant would count as on-trade.
Canned Food: Relates to the sale of food products preserved by canning. This is inclusive of canned meat
and fish, canned ready meals, canned desserts and canned fruits and vegetables. Volume sales are measured
in thousand tonnes as opposed to on a unit basis to allow for cross-market comparisons.
Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products. Chocolate sales
include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum;
and sugar confectionery sales include hard-boiled sweets, mints, jellies and medicated sweets.
Trade: In the majority of BMI's Food & Drink reports, we use the UN Standard International Trade
Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and Vegetable
Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits. Where an alternative classification is used due to
data availability, this is clearly stated.
Drinks Sales: Soft drink sales (including carbonates, fruit juices, energy drinks, bottled water, functional
beverages and ready-to-drink tea and coffee), alcoholic drink sales (including beer, wine and spirits) and tea
and coffee sales (excluding ready-to-drink tea and coffee products that are incorporated under BMI's soft
drinks banner) are all off-trade only, unless stated.
Mass Grocery Retail
Mass Grocery Retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by
companies with a network of modern grocery retail stores and modern distribution networks. MGR differs
from independent or traditional retail, which relates to informal, independent-owned grocery stores or
traditional market retailing. MGR incorporates hypermarket, supermarket, convenience and discount
retailing, and in unique cases cooperative retailing. Where supermarkets are independently owned and not
classified as MGR, BMI will state so clearly within the relevant report.
Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of
general merchandise goods (non-food items) and typically more than 2,500m in size. Traditionally only
found on the outskirts of town centres, hypermarkets are increasingly appearing in urban locations.
Supermarket: Supermarkets are the original and still most globally prevalent form of self-service grocery
retail outlet. BMI classifies supermarkets as more than 300m, up to the size of a hypermarket. The typical
supermarket carries both fresh and processed food and will stock a range of non-food items, most
commonly household and beauty goods. The average supermarket will increasingly offer some added-value
services, such as dry cleaning or in-store ATMs.
Discount Stores: Although most commonly between 500m and 1,500m in size, and thus of the same
classification as supermarkets, discount stores will typically have a smaller floor space than their
supermarket counterparts. Other distinguishing features include the prevalence of low-priced and private
label goods, an absence of added-value services, often called a no-frills environment, and a high product
turnover rate.
Convenience Stores: BMI's classification of convenience stores includes small outlets typically less than
300m in size, with long opening hours and located in high footfall areas. These stores mainly sell fast-
moving food and drink products (such as confectionery, beverages and snack foods) and non-food items,
typically stocking only two or three brand choices per item and often carrying higher prices than other
forms of grocery store.
Cooperatives: BMI classifies cooperatives as retail stores that are independently owned but club together
to form buying groups under a cooperative arrangement, trading under the same banner, although each is
privately owned. The arrangement is similar to a franchise system, although all profits are returned to
members. The term is becoming more archaic, with fewer cooperatives remaining that conform to this
model. Most cooperative groups now have a more centralised management structure, operate more like
normal supermarkets, and are thus classified as such in BMI's reports.
Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined.
Common to our analysis of every industry is the use of vector autoregressions. Vector autoregressions allow
us to forecast a variable using more than the variable's own history as explanatory information. For
example, when forecasting oil prices, we can include information about oil consumption, supply and
capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient
historic data or data quality is poor. In such cases, we use either traditional decomposition methods or
smoothing methods as a basis for analysis and forecasting.
BMI mainly uses ordinary least squares estimators. In order to avoid relying on subjective views and
encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear
model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods
of 'industry shock', for example when poor weather conditions impede agricultural output, dummy variables
are used to determine the level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including but not exclusive to:
R2 tests explanatory power; adjusted R2 takes degree of freedom into account
Testing the directional movement and magnitude of coefficients
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)
All results are assessed to alleviate issues related to auto-correlation and multi-collinearity
BMI uses the selected best model to perform forecasting.
Human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous
data, turning points and seasonal features where a purely mechanical forecasting process would not.
Sector-Specific Methodology
Within the Food & Drink industry, issues that might result in human intervention might include but are not
exclusive to:
Significant company expansion plans;
New product development that might influence pricing levels;
Dramatic changes in local production levels;
Product taxation;
The regulatory environment and specific areas of legislation;
Changes in lifestyles and general societal trends;
The formation of bilateral and multilateral trading agreements and negotiations;
Political factors influencing trade;
The development of the industry in neighbouring markets that are potential competitors for foreign direct
investment.
Example Of Food Consumption Model
(Food Consumption)t = 0 + 1*(GDP)t + 2*(inflation)t + 3*(lending rate)t + 4* (foreign exchange
rate)t + 5*(government expenditure)t + 6*(food consumption)t-1 + t
Sources
BMI uses the following sources in the compilation of data, developments and analysis for its range of Food
& Drink reports: national statistics offices; local industry governing-bodies and associations; local trade
associations; central banks; government departments, particularly trade, agricultural and commerce
ministries; officially released information and financial results from local and multinational companies;
cross-referenced information from local and international news agencies and trade press outlets; figures
from global organisations, such as the WTO, the World Health Organization (WHO), the UN Food and
Agricultural Organization (FAO) and the Organisation for Economic Co-operation and Development
(OECD).
Risk/Reward Rating Methodology
BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of
doing business and the industry-specific opportunities and limitations for potential investors in a given
market. The RRR system divides into two distinct areas:
Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub categories:
Industry Rewards: This is an industry-specific category taking into account current industry size and
growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall
score for potential returns for investors.
Country Rewards: this is a country-specific category, and the score factors in favourable political and
economic conditions for the industry.
Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that call into question the likelihood of expected returns being realised over the assessed time period.
This is further broken down into two sub categories:
Industry Risks: This is an industry-specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry, and the relative maturity of a market.
Country Risks: This is a country-specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score.
We take a weighted average, combining industry and country risks, or industry and country rewards. These
two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
rating a weighted average of the total score. Importantly, as most of the countries and territories evaluated
are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This ensures that
the rating draws on the latest information and data across our broad range of sources, and the expertise of
our analysts.
In constructing these ratings, the following indicators have been used. Almost all indicators are objectively
based.
Table: Food & Drink Risk/Reward Rating Indicators
Rewards

Industry rewards

Food and drink consumption per capita, US$
Indicator denotes overall breadth of market. Wealthier markets
score higher.
Per capita food consumption growth, five-
year compound annual growth, %
Lead Food & Drink growth indicator. Scores based on compound
annual growth over our five-year forecast period.
Market fragmentation
Subjective score reflecting how relatively developed the industry
is. Higher score reflects a more fragmented industry.
Country rewards

Population size, mn Indicator denotes size of market.
GDP per capita, US$
Proxy for wealth. Size of population is important but needs to be
considered in relation to spending power. High-income states
receive better scores than low-income states.
Youth population, %
0>15%, % of total working age population. Younger populations
are generally considered to be more desirable.

Risks

Industry risks

Mass grocery retail penetration, %
The proportional contribution of the organised food retailing
sector; higher scores reflect better developed routes to
consumers and more efficient internal trade systems.
Regulatory environment
Subjective rating based on the industry-specific regulatory
environment and the presence of potentially restrictive legislation.
Country risks

Short-term economic growth
Rating from BMI's Country Risk Ratings (CRR). It evaluates likely
growth trajectory over a two-year forecast period, based on
BMI's forecasts and projections of business and consumer
confidence.
Income distribution
Middle 60% of population, % of total spending. Higher score is
an indicator of incomes being spread more equitably.
Lack of bureaucracy
From CRR. It evaluates the risks to business posed by official
bureaucracy, the broader legal framework and corruption.
Market orientation
Subjective rating from CRR to denote predictability of openness
to foreign investment and trade.
Physical infrastructure
From CRR. Poor power/water/transport infrastructure act as
bottlenecks to sector development
Source: BMI
Weighting: Given the number of indicators/datasets used, it would be inappropriate to give all sub-
components equal weight. Consequently, the following weights have been adopted:
Table: Weighting
Component Weighting
Rewards 60%
- Industry rewards 30%
- Country rewards 30%
Risks 40%
- Industry risks 20%
- Country risks 20%
Source: BMI
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.

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Q2 2014

India's abundance of natural agricultural resources makes the market attractive to

Specific state-by-state legislation governing aspects of high-value business, such as

Agriculture remains inefficient and is vulnerable to climatic changes. Two-thirds of the

Despite rapid economic growth, India remains a very poor country.

Rising disposable incomes and increasing urbanisation mean higher-value processed

Although non-essential consumer goods are barely established at the mass-market

India's abundance of natural agricultural resources makes the market attractive to

Per capita consumption of alcoholic beverages is very low by global standards,

Poor infrastructure remains a significant deterrent to investment from multinational

Despite rapid economic growth, India remains a very poor country.

Companies have to invest large amounts in advertising, marketing and distribution

Although non-essential consumer goods are barely established at the mass-market

India's infrastructure is notoriously inadequate. A 500km road journey can take as

Government restrictions on foreign investment in the retail sector remain overly

Likewise, investment in the convenience sector will enable retailers to capitalise on

The backing of a powerful parent company allows for considerable investment in

Among wealthy urban residents, further product innovation - particularly at the

Relatively subdued domestic demand in 2012/13 may result in lower sales

Amul is committed in driving international expansion, planning to expand distribution

A depreciating Indian rupee will fuel export growth.

2013 sales: US$2.2bn

Expansions in production capacity should see Britannia better cater to rising

A growing health-awareness trend represents a rapidly enlarging opportunity for

An increasingly competitive confectionery market as a result of the continued arrival

2013 sales: US$970.8mn

The financial backing of US parent company PepsiCo facilitates investments in

Developed marketing capabilities and an extensive distribution network can facilitate

Higher-value non-carbonates offer the strongest long-term opportunities.

Favourable demographics ensure a growing audience, both in terms of numbers and

Upstream investments in agricultural processing facilities will aid input cost

PepsiCo India is targeting low-cost packaged water, which is generally sold in

A relative slowdown in the Indian economy will hurt PepsiCo's revenues.

2013 sales: US$65.5bn

A strong local brand heritage should help UB offset international competition.

An overarching reliance on the Indian beer market leaves UB particularly vulnerable to

UB could leverage on Heineken's distribution network to gain improved access to its

Increasing consumer affluence will encourage a growing number of consumers to

2013 net sales: US$716.9mn

An independent retail sales team greatly enhances distribution of Coca-Cola brands.

Consolidating bottler activities and taking majority ownership of more operations

SABMiller's market is spread over a wide geography, with its 10 breweries

2013 sales: US$3.8bn

Local market knowledge gives it an advantage over international retailers arriving in

RPG can leverage its local knowledge to tailor offerings specifically.

Fast-expanding multinationals could undermine RPG's gradually built-up market

RPG's hypermarket division requires significant further growth, which means

A multi-format operation allows Pantaloon to cater to a wider range of Indian

Remaining profitable and pursuing expansion are challenging in a price-sensitive

R2 tests explanatory power; adjusted R2 takes degree of freedom into account

Testing the directional movement and magnitude of coefficients

Significant company expansion plans;

New product development that might influence pricing levels;

Dramatic changes in local production levels;

The regulatory environment and specific areas of legislation;

Changes in lifestyles and general societal trends;

The formation of bilateral and multilateral trading agreements and negotiations;

Political factors influencing trade;

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