Cricket, films and food – three uniting elements of the vast and varied land which is India. Here, everyone is a foodie – people love their food, but they want to cook at their own convenience. They want delicious, food yet they want it quick and easy. They want fun food options, which are beautifully presented because if you haven’t posted your food on Instagram, are you even on Instagram?
Gen Y and Gen Z – the foodoholics, who are digital natives – also want more than your staple dal-roti options. They want to experiment with various cuisines and food retailers are working round the clock to ensure they get exactly what they want.
Factors like higher consumer awareness and exposure, shift towards an urban lifestyle, growing culture of nuclear families, a greater presence of women in the workforce, increased spending power, and lower availability of food preparation time have greatly supported the expansion of this category.
Apart from this, rapid urbanization, a growing middle-class population, rising disposable incomes, and internet technology penetration in rural areas has led to the rapid growth of the processed food category.
The growing demand for processed food products is also due to fallout of young consumers shifting from a traditional to a modern cultural environment, adapting to new food trends and opening up to other cultures; something which has been witnessed increasingly in India over the last few years.
Thus, the dawn of the processed food era.
So, What is Processed Food?
Processed food is any food item that has been altered from its natural state through various methods such as cooking, drying, canning, freezing, or adding ingredients for preservation or enhancement of flavor and shelf life. Processing can range from minimal steps like washing and packaging to more complex procedures that involve combining different ingredients, using additives, and undergoing various cooking or chemical processes.
The category is no longer restricted to segments like mayonnaise, spreads and sauces but has also broadened to include staples, FMCG, F&V, Dairy, Frozen & Meat categories.
Euromonitor International considers the following food segments to belong to the processed food category – Baby Food, Baked Goods, Breakfast Cereals, Confectionery, Dairy, Edible Oils, Ice Cream and Frozen Desserts; Processed Fruit and Vegetables; Processed Meat and Seafood; Ready Meals; Rice, Pasta and Noodles; Sauces, Dressings and Condiments; Savoury Snacks etc. Edible oils and dairy are the biggest segments in the processed food category while products like biscuits, savory snacks, confectionery, spreads, soups, noodles, pasta and ice creams remain the most dynamic.
Some specific processed food sectors such as dairy, bakery and breakfast cereals are witnessing a higher growth rate and higher acceptance among consumers.
“Millennials and Gen-Z are driving the demand primarily for ready-to-eat and ready-to-cook segments,” says Mamta Gandhi, Category Manager – Foods, Wellness Forever Medicare Pvt. Ltd.
“The demand for RTC/ RTE skyrocketed during Covid. Many people are still working from home, which has brought about changes in their lifestyles leading to a more relaxed and quick indulgence approach to food – another reason for the growth of RTE/RTC categories. There has also been a spike in demand with quick commerce growing at a faster pace,” adds Sameer Shaikh, Regional Buying & Merchandising Head – Grocery, FMCG, Staples, F&V, Bread & Dairy, Gourmet – bigbasket.com.
Changing Consumption Patterns
The domestic consumption of processed food is expected to grow by 10-15%, while the export market is also seeing high potential and is expected to grow at a CAGR of 18-20%. The major markets for Indian processed food are Europe, the Middle East, Japan, Singapore, Thailand, Malaysia and Korea.
“Aside from instant indulgence, consumers are looking for healthy options. There have been a lot of innovations like having different base of super foods like finger/foxtail millet, jowar, kodo millet, and ragi. Many products now have ingredients like chia seeds, flax seeds, dates, lotus seeds, pumpkin seeds, sunflower seeds, and watermelon seeds,” says Sameer Shaikh.
- Processed food has also gained more shelf space in a majority of retail formats and this is only poised to increase. Retailers are extensively launching specific processed foods as private labels. The wide acceptance of such store-owned products is boosting the quality of offerings, leading to higher consumption among the masses. Improvements and better reach of food retail will be the key driver to speed up the penetration of processed food.
What Research Says
IMARC data says:
- In 2020, the market size of India’s packaged food industry was estimated to be around $52.75 billion. India’s food processing market size reached Rs 25,455 billion in 2022 and will hit Rs 45,345 billion by 2028, at a CAGR of 9.5% (2023-2028).
India Brand Equity Foundation (IBEF) data says:
- Indian food processing industry has grown rapidly with an average annual growth rate of 8.3% in the past 5 years. With a market size of $866 billion in 2022, the food industry will play a vital role in the economy’s growth.
KPMG data says:
- 1. The Indian processed food market is expected to grow from $263 billion in 2019-20 to $470 billion by 2025
- 2. Innovative products focused on wellness, health and nutrition are likely to see a huge opportunity in the domestic market.
- 3. Adopting a collaborative approach is the key to catalyze growth in the industry.
- 4. To ensure a faster scale up of quality infrastructure in line with industry requirements, the report recommended that government partnership with private players through appropriate PPP models need to be considered.
- 5. Rural areas and Tier 2/3 cities are expected to continue driving the demand for processed food.
Trends Reshaping the Category
Amid all the disruptions playing out, here are the trends that are rapidly reshaping the industry:
1. Burgeoning Demand for Healthy Foods: The demand for processed food, especially healthy ones, is on the rise. Conscious consumers want food-on-the-go and brands and retailers are serving health and wellness in packs, with lower carbohydrate content and low cholesterol and edible oils like zero % trans-fat snacks and biscuits, slim milk, whole wheat products, etc.
2. Fresh Produce Emerging as Niche Category: There is a surge in the demand for fruits & vegetables as a result of a shift in healthy consumption. Accordingly, Indian farmers are also shifting production towards horticulture crops to cash in on the growing demand. The trend has also caught up with food companies like ITC entering the veggie segment with Farmland in November 2017. The fresh produce by the company is being sold at 10-15 per cent premium over local market rates.
3. Intensified Competition: The entry and setting up of International food companies in India has bolstered the sector’s health due to economic liberalization and growth in modern retail. Global players like Danone, Nestle, Kraft Foods, Mondelez International, Heinz and many more are today active contributors to the sector’s growth.
4. Growing Importance of Food Packaging: Food packaging has enabled today’s consumers to look for various options, and compare the value offerings thereof, before making a purchase. Packaging has also helped enhance ‘carry-ability’ of products and increase their shelf life.
5. Usefulness to Consumers: Consumers have become aggressive in demanding better, safer, and convenient food products and are willing to pay a higher price for the desired products. This has made food companies adopt the strategy of developing the usefulness of products for consumers instead of the earlier focus on the usefulness of products from a processing point of view.
6. Frozen & Processed Goodness: Frozen processed foods offer both convenience and nutrition. The increase in the spending capacity and concurrent time-paucity has led to the continuous development of such frozen processed food products as frozen vegetables (e.g. peas, potato, corn, etc.) and non-vegetarian products such as chicken, fish, and meat.
7. Expansion Through Product Innovation: Product innovation is always needed as consumers not only prefer safe ingredients and additives but also useful ones. This creates opportunities for product innovation, specialized products, and product extensions for existing food processors as well as the new entrants. Therefore, it is now the norm for food processing companies to offer value-addition to their repertoire. This helps the processors to not only reduce wastage, but also expand the uses and realize higher returns.
8. Direct Farmer-Farm Linkages: Contract farming has been operational in India for a long time now. However, the experience of the private sector players involved therein has been a mixed bag of successes and failures. Largely, it has helped the processing companies, via increasing sales and therefore augmenting their incomes, as well as providing access to better technology and fetching better prices by securing an assured market for Indian farmers. Some of prominent players who have adopted this route of strengthening direct farmer-farm linkages include Nestlé, PepsiCo, Venky’s, Milkfed, Mahagrapes, among others.
