From 2011 to 2016, large consumer products’ companies in the US lost about $18 billion to smaller companies — showing how local players are creating a market out of emerging consumer needs. Globally, consumers are demanding products that are LATTE (local, authentic, traceable, transparent and ethical). Although the concepts of traceability, transparency and ethicality are yet to catch up on a larger scale in India, the demand for more local and authentic products is already on a surge. A great example is the chips market where smaller regional/local players are giving stiff competition to larger pan-India companies.
The market has been dominated by PepsiCo for a long time. However, a number of smaller regional/local companies like Balaji Wafers, Prataap Snacks, Haldiram Foods, etc have entered the market. Value for money and a push by retailers also help these brands. Local players tend to spend less on marketing initiatives giving them a significant cost advantage. Also, being closer to consumers gives them the ability to understand their preferences, ingredients, textures, etc and react in a timely manner by launching new variants.
When regional players expand and aim for a pan-India presence, their challenges (and costs) multiply. Regional players will have to invest considerably to be able to match up to the scale, size and distribution network of a national brand. Also, they would need to address differences in preferred tastes and flavours across India since the same product may not succeed in different zones and regions. A pan-India presence brings with it higher distribution costs and significantly lower speed-to-market for new product launches. This coupled with higher advertising costs would also increase price of products.
On the other hand, pan-India players will need to alter their strategy to be able to provide region-specific products, be swifter in tapping changing consumer demand, launch new variants faster and be more agile while addressing competition from regional players. However, they do not have the flexibility in their R&D and supply chain to achieve this effectively. It remains to be seen whether regional players can match up to the muscle of larger pan-India players and whether the existing behemoths can deepen their regional presence to match the agility of smaller regional companies.
We expect the trend of local players gaining dominance in regional pockets to continue over the next few years. But, since the market itself is growing due to rising consumption, it would continue to offer enough opportunities to different players to co-exist and grow, if they carve out their niche and align their strategies.
Pinakiranjan Mishra, Partner & Sector Leader, Consumer Products and Retail, EY India