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India Food (Packaged & Service) poised for long-term growth; but facing near-term demand pressure

We attended the India Food Forum (IFF) held on 30th November and 1st December 2023 in Mumbai. Following are some key takeaways from our visit: -

Key problems highlighted by Grocery retailers towards FMCG brand manufacturers

? Big retailers are entering small towns, while small retailers have started transforming themselves into ‘Modern Stores’. There seems to be a confusion in the definition of Modern Trade store between grocers and FMCG brands. FMCG brands believe these are single stores (classified into GT). As per International Grocers association (IGA), a store having self-service, modern billing system and were transfer of promotions is fully done, is called as MT. These modernized retailers thus want to be treated and serviced as Modern trade (MT) stores.

? Problems faced by these retailers: don’t get enough support from distributors, lack of supply of certain categories as well as MT sku’s and the longer duration of delivery.

? These modern grocery retailers want exclusive promotions from all companies similar to what is being given by Unilever & ITC.

? Retailers want no dumping of products by providing seasonal discounts. They want same discounts irrespective of quantity ordered, as given by P&G and Unilever.

FMCG brand manufacturers addressing Grocery retailers problems

? While consumption trends and category awareness is there in tier 2 & tier 3 cities, viability of supply for low volume categories is an issue.

? Brands want retailers to make some investments on infra (for e.g., investing R20- 30k on freezers to stock frozen foods), as they also believe the headroom to grow is huge beyond top 40 towns.

? FMCG brands would appreciate ease in customer data sharing from single store modern retailers especially for better demand forecasting & inventory management.

? Brands also want retailers to not breach their trust by buying outside inventory.

? They also want promotions to be fullly passed-on which can be audited & validated.

Current environment for food service industry

? Demand in September & November’23 has been below expectation for the foodservice industry. Industry is now dependant on December month for better overall growth in 3QFY24. Some of the industry participants believe current challenging times could last for atleast 2 quarters.

? Over the last few years, industry became too premium for the consumers. But in the current demand environment, foodservice brands are moving their focus back to the core/basics.

? Last 3 years have been a volatile cycle of growth between delivery and dine-in. Compared to pre-covid, most of foodservice brands have seen an increase in the mix of delivery business.

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