Packaged food as a category has emerged as an outlier in the domestic fast-moving consumer goods (FMCG) market, contributing to the strong sales performance of the segment players in the March quarter of FY23. Firms like Nestle India, Britannia, Marico and ITC, for instance, have all reported double-digit growth (13-21%) in the food segment in Q4. These firms have also lined up big plans for the segment, ahead of their non-food peers.
The food segment has maintained a positive growth trajectory even as the non-food category, which includes home and personal care, has had a bumpy ride in FY23, data from Nielsen showed.
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The June quarter (Q1FY23) growth in the food and non-food segments was the strongest owing to a low base effect in the previous year (impacted by the second wave of Covid-19). Growth in September, December and March quarters in the food category was between 3% and 8%. Growth in the non-food segment, on the other hand, declined in the September quarter (-6.8%) and was flat in the March quarter (0.2%), according to Nielsen data.
“The shift from unbranded to branded products has been stronger in the food segment following the Covid-19 pandemic,” said G Chokkalingam, founder and managing director at Mumbai-based Equinomics Research. “This has contributed to growth in the category,” he said.
The uptick in packaged foods has also come in the face of food inflationary pressures over the last few quarters. While edible oil prices have fallen over the last few months, milk and wheat prices have remained firm, sector experts said. But price pressures did not prevent chocolate, biscuit, beverage and snacks food categories, for instance, from reporting growth between 10-15% over the last few months, led by smaller packs, bigger distribution push in urban and rural areas, and consistent product launches, say experts.
Kaustubh Pawaskar, deputy vice-president, fundamental research at brokerage Sharekhan, explains, “Packaged foods tends to have a higher urban skew versus home and personal care. Plus, when food inflationary pressures grow, consumers opt for smaller packs, but don’t downtrade or shift to cheaper alternatives like they do in home and personal care. In other words, they tend to stay invested in the category.”
This tendency to stay invested in packaged food has aided growth for the segment majors. Nestle India, for instance, has a Rs 5,000-crore capex plan in place over the next three years. It is also looking at acquisitions in categories such as Chinese noodles, a growing segment within the larger instant noodles space, where Maggi is the leader.
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Marico, on the other hand, has set itself a topline target of over Rs 850 crore in the food category in FY24, after closing FY23 at Rs 600 crore in the segment. In a recent earnings call, Saugata Gupta, Marico’s MD & CEO, said the food business has emerged as a key pillar in the company’s diversification exercise.
“The food segment grew 18% in Q4,” Gupta said in the call with investors. “Saffola Oats continued to anchor the growth as it maintained its leadership position in the category with a 43% value market share. Newer offerings such as Honey, Soya Chunks, Peanut Butter, Munchiez and Mayonnaise witnessed healthy traction,” he added.
Britannia’s MD Varun Berry said this month that the company delivered a robust Q4 growth on the back of significant distribution gains in its business.
“We continued to accelerate our rural journey with focus on enhancing reach, partnering with 28,000 rural distributors and sustaining our diligent market practices,” he said.
Britannia also announced the commercialisation of two biscuit manufacturing units in Uttar Pradesh and Tamil Nadu, and a brownfield expansion in Odisha.
ITC said that it would continue to make its food portfolio future-ready with investments in digital brands, nutrition-led food products and innovation in other segments of the portfolio to capitalise on growth.
The company has also indicated that it would like to add more brands from the food portfolio in its top brands list, which includes names such as Yippee! noodles, Aashirvaad atta and Sunfeast biscuits.