Munching on Salty Success
The first port of call for customers was the neighbourhood namkeen bhandaar, followed by the small and big companies who slowly made inroads into homes with their branded potato wafers or chips. No wonder then, the market today for chips alone, stands at around Rs. 1,100 crore. It has grown more than 60% over the last six years. And it is by far the single biggest item in the snacks and savory category. In the next two years, this will change. As consumers and companies turn experimental, as reflected in the new variety of snacks available in the market, extruded snacks which include the likes of PepsiCo India's Kurkure will soon over take potato chips as the biggest snack item in the Indian market.
According to a report by consultancy firm KPMG, the market value for extruded snacks which in 2009 stood at $223.7 million will touch $298.7 million by 2011. Not just that, it will be growing the fastest in the next five years.
Extruded snacks are snacks cooked, pressurized and pushed out of a die that gives them their unique shape.
Clearly, the Indian snacks market is on a roll led by the organized players who account for close to half of the total market share. While Haldiram's, one of India's oldest traditional snacks maker, and PepsiCo with its Lays and Kurkure brands dominate the market, the last few years have seen more companies join the fray. And it has not meant more of the same. The new players have come up with different offerings and they have found acceptance from the consumers.
“A gradual shift in Indian consumers' dietary intake patterns has resulted in greater number of snacking occasions and a demand for a greater variety of snacks from the organized market. Now, Indians perceive snacking as more than just a break from the usual dietary routine, and are therefore demanding novel flavours, packaging and product concepts from manufacturers,” said Anand Ramanathan, sector analyst at KPMG.
“It is really the way the markets have progressed, the consumers have progressed all across, leading to introduction of new products. Consumers are looking for new things, new formats and new experiences. A lot of people are looking for healthier options. All this has allowed companies to invest in innovations and categories,” said Nadia Chauhan, joint managing director and chief marketing officer, Parle Agro. The company recently entered the salty snacks market with its baked munchies called Hippo.
To PepsiCo goes the credit of expanding the organised snacks market. Till 1995, when Pepsico introduced two brands Lays and Cheetos, there was only Haldiram's and Amrit Agro that launched potato chips under the brand name Uncle Chipps. When PepsiCo launched Kurkure in 1999, it went on to become a runaway success. “Kurkure's tedha hai par mera hai creative idea is based on the insight of Indians being increasingly confident about their imperfections,” adds Deepika Warrier, marketing director (Frito Lay India), PepsiCo India.
In 2000, Frito Lay India, a division of PepsiCo India, acquired the Uncle Chipps brand. And from then on, there was no looking back. The company's several brands straddle different market segments – while Kurkure endorsed by Bollywood actor Juhi Chawla is positioned as a family snack, Lays is targetted at the youth with Bollywood actor Saif Ali Khan as its brand ambassador and Uncle Chipps with its “Bole mere lips, I love Uncle Chipps” tagline caters to children. Aliva, the latest in its kitty, marks FritoLay India's creation of yet another category—borrowing ingredients and textures from biscuits and flavours from namkeens and is positioned as a healthier snacking option.
“There are two things which were kept in mind. The palette and taste preferences of the Indian consumer cannot be changed easily. And second, with snacking largely being an in home activity, if you are able to position the brand with the in-home consumption, the traction grows manifold. This was evident in Kurkure's case,” says Sanjeev Bhargava, COO-Draftfcb+Ulka, Delhi. The agency handled the Frito Lay account earlier and had helped launched the Kurkure brand.
The next big leap happened in 2007, when fast moving consumer goods company ITC launched an array of potato chips and finger snacks products under the brand name Bingo!. At the time of the launch, Ravi Naware, divisional chief executive, ITC had said, “This is an exciting and fast growing category with a big untapped market. We have extensively studied the market and our product development team has created products with variants that will hold tremendous appeal to the Indian consumer.”
Bingo!'s launch was ably supported by quirky advertising and within a year it grabbed a market share of 9%. “Bingo brought tastes which were familiar to the Indian taste buds but with a hint of unfamiliarity. Snacking is a mindless activity but we took “mindlessness” very seriously”, says Simi Sabhaney, president – advertising, Ogilvy & Mather, Bangalore, the agency behind the Bingo! campaign. While the thrust was on youngsters it did not want to alienate the family. “The communication has never been so irreverent that others reject it. Humour tends to involve everyone at home,” she added.
And the next innovation in the market came in even lesser time. Parle Agro's Hippo and Parle Products' Smart Chips entered the market in 2009.
Players say the market has grown by 25-40% in the last few years barring the last year when growth dipped to below 10% as a result of the slowdown. Currently the salty snacks market stands at around Rs 7000 crore. It is the high pace of growth which has attracted a lot of players. “New formats could be brought in which hadn't been explored. We felt there wasn't enough justice being done in terms of variety,” said Chauhan. Parle Agro set up a new distribution network and focused on 100 markets which were not just urban markets. “Within metros there are a number of markets akin to rural ones which have a very high potential,” she added.
Indeed, Indians continue to show a great appetite for snacks. According to a survey conducted by electronic payments company VISA on mystery spending or cash spent but which cannot be accounted by consumers, Indian spend the second highest on snacks. The average mystery spending per week of young Indians in the age group of 18 to 24 years stood at Rs 383 of which almost 36% was on snacks. The total spending per year on snacks for one person thus stands at around Rs 7,000. The increase in competition has seen players launching their own versions of the popular snacks of their rivals.
“Consumers now want variety and new tastes. They are not loyal to any particular brand,” says Pravin Kulkarni, marketing manager, Parle Products. The company introduced baked potato chips called Smart Chips last year as they saw good growth in the snacks category. “The key lies in exploring new formats,” said Kulkarni.
Another factor that has worked towards the shift from the home-made snacks to the branded packs is the price. “The Rs 5 price point is a large percentage of our sales and launching low unit price points such as the Rs 3 Kurkure pack clearly shows our intent to increase relevance for the lower socio-economic and rural consumers who are aspiring to participate in the India growth story,” said PepsiCo’s Warrier. The company with its Lays brand holds the leadership position in the potato chips space among organised players and its snacks food division accounts for 30-35% of its overall revenues.
“It is challenging to give quality and quantity at the price points of Rs 5 and Rs 10. But the bulk of the consumers are in the middle and lower middle classes. At the same time, affordability is what has driven the upsurge in the demand for snacks,” said Hitesh Virani, general manager, Balaji Namkeen, a traditional snacks maker based in Gujarat. The brand has the largest market share in Gujarat.
This had also led to an uptick in rural areas. “We obviously see the rural market as a huge oppor-tunity for growth,” said Warrier.
As per data from The Nielsen Company, the compounded annual growth rate for snacks in the rural market over the last 2 years stood at 26.7% as against 13.2% for urban areas. “Though rural’s contribution is only about 33%, it’s growing much faster than the urban markets,” said a Nielsen spokesperson, who did not want to be named.
Even as there has been a proliferation of brands in the salty snacks category, there has been a gradual shift towards offering healthier snacking options. Whether it is the no trans fat tag or healthier snacks like Smart Chips or Aliva, consumers are looking for healthier alternatives in every food category, and the brands are listening. “What is driving innovation in the segment is the need to balance taste and health without compromising on one or the other and break this credit-debit lifestyle we live every day,” said Warrier.
At the same time, there is a lot of work to be done. “Nobody is looking to enter the traditional namkeen market, which is of course big,” said Anand Mour, analyst -FMCG and retail at India Bulls. Lehar Namkeen, a tradional snacks category from PepsiCo which was once marketed aggresively is not being promoted. The company claims it is quite popular in the north. And there hasn’t been any big name exploiting that market.
Also the companies can’t afford to tinker with the prices. The only option is to reduce grammage. If established companies do so, they risk losing out to smaller players.
Nonetheless, the category looks set for huge growth in the coming years. “The organised snacks market is expected to achieve growth in the range of 15-20% per year while unorganized snacks will grow at 7-8%,” said Ramanathan. “Between 2008 and 2009, we launched close to 20 products including Aliva crackers, Kurkure Desi Beats wheat lime, Cheetos Whoosh whole grain better for you snacks, and Lay’s Stax for premium indulgent snacking,” said Warrier. That clearly indicates that much more action will take place in this segment.