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Indian breakfast market to liven up this year

By RJ Whitehead , 04-Jan-2013

Two of India's biggest food companies are preparing to extend their battle into the lucrative, albeit relatively new, breakfast oats category this year.

According to reports, both Hindustan Unilever (HUL) and Nestlé anticipate the launch of oats under their Knorr and Maggi brands respectively into a market already worth Rs200cr (US$36.8m). However, both companies so far have refused to confirm their intentions.

According to The Economic Times, which quoted two people familiar with the development, the two companies are gearing up to introduce oats as an extension to their noodle lines. 

They will join Quaker oats, which as an early starter entered the Indian market over seven years ago, as well as products from companies that include GSK Consumer, Kellogg India, Britannia and Marico. The paper quotes the market as growing at over 40% annually as Indians continue adopt a more Western approach to breakfast.

A question of taste

But even though sales of Maggi noodles alone are estimated at almost double the value of the entire oat market, there is good potential for the new products just so long as they are adapted for the Indian market.

And taste will be the key. While the market appreciates healthy food, health benefits must be combined with strong flavour properties in order to appeal to consumers. For example Quaker, which is the market leader with a share of over 35%, introduced masala-flavoured oats last year, and there is speculation that Kellogg and GSK Consumer are not far behind with similar variants in development for launch later this year.

"A lot of experimentation has taken place in last two to three years in the breakfast category, and with the recent launch of flavoured oats, especially with Indian taste, the entire story has changed and we seem to have, for once, found the solution to marketers' dilemma of what's healthy is not tasty and what's tasty is not healthy," Devendra Chawla, president of Food Bazaar at Future Group, told The Economic Times.

"While there are challenges in changing Indian consumers' food habit, breakfast as an occasion is seeing the maximum change," Sameer Satpathy, marketing head of Marico, which was the first company to launch masala oat variant, was quoted as saying. "The organised breakfast market is under-penetrated and new entrants will help grow the segment even as competition intensifies."

Cutting margins

Meanwhile, Nestlé has cut the size of the Rs5 packs of its popular Maggi noodles by 5g to 35g, and also reduced retail margins by 1%, according to a report by Karvy Stock Broking.

"Nestlé India has recently reduced retail margin on Rs5 packs of Maggi noodles to 8% versus 9% earlier; however, it retained a 9% retail margin on other Maggi noodles SKUs. Besides, Nestlé has reduced grammage of Rs5 packs to 35g versus 40g earlier," Karvy analyst Naveen Trivedi, said, citing researched data and information from distributors.

This is part of a strategy by the Swiss food major to cut margins as competition for small packs, which are targeted at low-income and rural consumers, heats up. However, many rivals, including ITC, aim to give a 10% retail margin on their noodles.

Karvy has been critical of this strategy, saying that Nestlé’s recent focus on high-value segments has resulted in greater profitability in these while losing momentum in its low-value ranges. “It has expanded the EBITDA margin even in the high inflationary scenario but could not maintain the volume growth momentum," said Trivedi.

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