India’s food and grocery sector comprises three primary categories: food processing, food retail, and foodservices. Each of these segments plays a vital role in meeting the diverse needs of consumers, contributing to the industry’s growth and economic significance.
India, a nation renowned for its rich cultural tapestry and culinary diversity, stands on the verge of an extraordinary transformation within its food and grocery sector. The blend of cultures has nurtured an agricultural legacy that mirrors the diversity of the nation. With a population exceeding 1.42 billion, India not only claims the title of the world’s most populous country but also reigns as the largest producer of several key agricultural products. Its agricultural strength encompasses a wide array of commodities, including rice, wheat, milk, spices, and various other products, highlighting its crucial position in global food production.
Simultaneously, India’s robust economy has solidified its place as the world’s fifth-largest, a testament to its enduring economic strength and vitality. The retail sector of India, a crucial gauge of economic vitality, is experiencing rapid growth and is expected to reach an astonishing US$1.3 trillion by 2025. This remarkable surge in retail value is driven by a growing middle class and increasing urban population. As urbanization reshapes lifestyles and consumption habits, there is a soaring demand for a wide range of convenient and innovative food and grocery options.
One of the key elements of India’s promising trajectory in the food and grocery sector is its government’s proactive approach. India has flung open its doors to foreign investors, allowing 100% foreign direct investment (FDI) in food processing, thus beckoning multinational corporations to establish a foothold and invest in the country. This strategic decision has not only fortified the sector but also catalyzed technological advancements, skill development, and a robust entrepreneurial ecosystem.
Beyond the economic indicators, the F&G sector holds deep socio-cultural importance in India. It constitutes 63% of the nation’s total retail market, underscoring its central role in the daily lives of its citizens. More than just a market segment, it serves as a vital source of employment, providing livelihoods to approximately 11.6% of the country’s workforce, from farmers tilling the soil to retail staff stocking shelves. India’s influence in the global food market is equally compelling. In the fiscal year 2022, India’s export of agricultural and processed foods reached an impressive US$25.6 billion, reflecting not only the nation’s capacity to meet domestic demand but also its growing significance as a global food supplier. The story does not end here.
The trajectory is unquestionably upward. Projections firmly indicate that by 2025, the food and grocery sector in India will burgeon to a staggering number. India’s F&G sector is a dynamic landscape teeming with potential. Propelled by a burgeoning population, shifting consumer preferences, government support, and technological advancements, the sector stands poised for continuous growth and transformation.
Food and grocery market segmentation
The food and grocery sector is a vast and multifaceted industry encompassing various sub-segments, each playing a unique and vital role in meeting the diverse needs of consumers.
Broadly, this sector can be segmented into three primary categories: Food processing, food retail, and food services. These segments collectively form the backbone of the industry, contributing to its growth, diversity, and economic significance.
Food Processing stands as the foundation of the food and grocery sector. This segment involves the transformation of raw agricultural products into value-added food products ready for consumption. From milling grains to canning fruits, from dairy processing to meat packing, food processing is a critical step in ensuring food safety, extending shelf life, and meeting the demands of a modern and fast-paced lifestyle. In FY22, this segment boasted a market size of US$308 billion, and it is poised for impressive growth, with projections estimating a market size of US$417 billion by FY25, indicating a Compound Annual Growth Rate (CAGR) of 10.6%.
Food processing encompasses a diverse range of key sectors, including fruits and vegetables, dairy, food grains, poultry and meat, ready-to-eat/ready-to-cook items, spices, and nutraceuticals. These sectors involve various increased demand for processed and convenience foods, driving innovation and investment within this segment. India’s ability to efficiently process its vast agricultural output, coupled with a diverse range of traditional recipes, positions it as a global player in the food processing industry.
Food retail is the segment that bridges the gap between producers and consumers. It encompasses various retail formats, including supermarkets, hypermarkets, convenience stores, and online grocery platforms. Food retail is a key touchpoint where consumers make choices based on factors such as price, quality, and convenience. As of FY22, the food retail segment combining convenience and choice in their food shopping experiences.
In India, the food retail landscape has been undergoing a significant transformation. The organized retail sector is gaining momentum, driven by changing consumer preferences, increased disposable incomes, and the desire for a modern shopping experience. The emergence of e-commerce has also revolutionized the way consumers shop for groceries, offering convenience and a wide variety of choices. With the retail sector anticipated to achieve a size of US$1.3 trillion by 2025, it is expected that food retail will continue to account for over 60% of this total.
The foodservices segment comprises restaurants, cafes, fast-food chains, catering services, and other establishments where consumers dine out or order prepared food. This segment is a reflection of evolving lifestyles, changing dining habits, and the desire for culinary experiences beyond the home kitchen. As of FY22, this segment had a market size of $73 billion, and it is projected to reach $105 billion by FY25, boasting an impressive CAGR of 12.5%.
In the food delivery segment, there are restaurant-owned delivery fleets and delivery aggregators like Zomato and Swiggy, which connect consumers with a wide range of restaurants. On the other hand, the dine-in experience includes both company-owned and franchisee owned establishments, from upscale dining venues to popular fast-food chains. This diversity caters to various consumer preferences, whether it’s the convenience of home-delivered meals or the ambiance of dine-in establishments.
In India, the food services industry has been witnessing robust growth, driven by factors such as urbanization, the rise of the millennial population, and increasing disposable incomes. The diverse culinary traditions of India, spanning regional flavors and global cuisines, contribute to the sector’s dynamism. The emergence of food delivery platforms and the trend toward eating out or ordering in have further fueled the growth of this segment.
The food and grocery sector’s segmentation into food processing, food retail, and food services reflects the complexity and diversity of this industry. Understanding these segments and their interplay is essential for stakeholders looking to navigate and succeed in this thriving sector.
Recent trends and developments in the food and grocery sector
The F&G sector is witnessing a profound transformation marked by a series of notable trends that are reshaping the way consumers shop for and interact with food products.
First and foremost, there is a tangible rise in health consciousness among consumers. Health-conscious individuals are increasingly seeking products that align with their dietary preferences and health goals. This trend has led to a surge in demand for organic, non-GMO, gluten-free, and plant based options.
In parallel, the convenience and meal kit segment has gained tremendous popularity, primarily driven by the fast-paced lifestyles of modern consumers. Consumers are gravitating towards options that require minimal preparation, saving valuable time and reducing food waste.
The infusion of technology and automation is another defining trend in the food and grocery sector. Grocery stores are harnessing technology to enhance the shopping experience by streamlining operations and reducing wait times. This includes the proliferation of mobile apps for ordering and payments, the deployment of self-checkout kiosks, and the emergence of cashier less stores where customers can swiftly grab items and exit without traditional checkout procedures.
Moreover, the surge in e-commerce and online grocery shopping, catalyzed by the Covid-19 pandemic, has left a permanent mark on the industry. Consumers increasingly turn to online platforms for their grocery needs, driven by the convenience and safety afforded by online shopping.
Sustainability and environmental concerns have taken centre stage making consumers more conscientious about sustainability and eco-friendly packaging, locally sourced products, and corporate commitments to reducing carbon footprints.
Furthermore, personalization and data analytics are transforming the way retailers engage with customers. Retailers are leveraging data and artificial intelligence (AI) to tailor marketing efforts and recommendations to individual customer preferences to enhance customer engagement and satisfaction, ultimately driving loyalty and sales.
The exploration of global flavors and ethnic foods is diversifying the product offerings in grocery stores. As consumers increasingly seek culinary adventures and explore diverse global cuisines, grocery retailers are expanding their selections of international and ethnic foods.
In the realm of kitchen technology, robotic kitchen assistants are emerging as tools to make cooking and meal preparation more efficient, convenient, and accessible. These robots are being used for various tasks, including food delivery, assembly, and even as planning assistants.
The food and grocery sector is undergoing a significant transformation driven by these multifaceted trends. From a heightened focus on health and sustainability to the integration of technology and automation, these developments are shaping the industry and redefining the future of food retailing and consumption.
Opportunities and way ahead in the food and grocery sector
As we navigate the dynamic terrain of the food and grocery sector, it is evident that innovation and sustainability are pivotal driving forces. Plentiful opportunities are present in the realm of alternative protein sources, zero-waste practices, and carbon-neutral commitments. Companies are stepping up to redefine their role in a world where conscious consumption, technological innovation, and environmental concern are paramount.
As technology continues to advance, food processing plants are increasingly embracing automation, robotics, and circular economy principles to streamline production, reduce labor costs, enhance food safety, introduce smart packaging solutions, minimize waste, optimize resource utilization, and reduce their environmental impact.
Driven by concerns about animal welfare, health, and environmental sustainability, this trend offers a fertile ground for innovation and investment in the development and marketing of alternative protein sources like plant-based and lab-grown meat.
Retailers are leveraging data and artificial intelligence (AI) to provide highly personalized shopping experiences, from product recommendations to customized meal planning.
Online grocery shopping is poised for substantial growth, reinforced by innovations like automated fulfillment centers and rapid delivery services. As consumers increasingly seek convenience, the integration of technology and logistics will continue to reshape the e-commerce landscape. Cost-effective concepts like cloud kitchens are proliferating, focusing exclusively on food preparation for delivery or takeout.
The fusion of in-person dining with virtual elements, such as augmented reality menus or live streamed restaurant kitchens, is set to redefine the dining experience. It creates engaging, immersive dining encounters that cater to evolving consumer expectations.
Lastly, food retail and service businesses are increasingly adopting zero-waste practices, ranging from reducing single-use plastics to re-purposing food waste into new products. This commitment to sustainability aligns with the growing environmental consciousness among consumers and positions companies as responsible stewards of the environment.
In addition to these opportunities, an increasing number of companies are pledging to reduce their carbon footprint and achieve carbon neutrality, both in food production and distribution. This commitment to sustainability underscores the sector’s dedication to environmental responsibility and resilience. The food and grocery sector’s future is brimming with promises, with these opportunities poised to shape its growth and evolution in the years to come.
Conclusion
Food processing, food retail, and foodservices comprise the three primary pillars of the country’s food and grocery sector. The food processing segment transforms raw agricultural products into value-added foods, ensuring safety and extending shelf life. With a substantial market size and a promising growth rate, it is fueled by technological advancements,changing consumer preferences, and government incentives. India, with its rich culinary heritage, has made its mark as a global player in this field.
Bridging the gap between producers and consumers, the food retail sector offers diverse offline and online shopping experiences, supported by changing consumer preferences, increased disposable incomes, and the rise of e-commerce.
From dine-in experiences to food delivery, the dynamic foodservices segment thrives in the modern Indian landscape. Urbanization, the rise of millennials, and diverse culinary traditions are contributing to its robust growth.
Recent trends are revolutionizing how consumers interact with food products, with a surge in health consciousness, convenience options, technological integrations, e-commerce, sustainability concerns, and personalization. Meanwhile, the industry’s future will increasingly be driven by exploiting the opportunities in alternative protein sources, zero-waste practices, carbon neutrality, streamlined production, smart packaging, and innovative retail experiences. Summing up, the food and grocery sector is poised for continued growth and evolution as it adapts to an ever-changing world.
The authors of the article are Ashish Dhir, Kashish Gupta & Sumeesha Dhawan.
