Snack food industry in India

There is a consensus that India is changing fast. Driven by increasing disposable incomes, favorable demographics, galloping internet penetration, easy access to credit, growing penetration of newer consumer service formats like malls, e-commerce, there is an unprecedented surge in consumerism across all the sectors. The Indian savory snack sector is a no exception !

Snack food industry in India …Shefali Mehndroo at IMAP provides an overview and a glimpse into its trajectory…

Over the past decade, in addition to the ingrained high in-between meals snacking habits of Indians, the fast-waning regional divide on food and culture with popular traditional products like Bikaneri Bhujia, Amdavadi Thepla or Delhi’s Moong Dal is finding favor with consumers across all regions; as well as the increased availability of superior quality products, assuring consumer a consistent quality experience – every time, anywhere, has further propelled growth. The above trends, have altered the standard definition of “Product-Market Fit” where today popular products are selling beyond their traditional markets to a much larger consumer base, providing players with the opportunity to grow expeditiously with incremental resources and effort. 

In fact, the industry which was fragmented with a host of small regional players selling traditional products catering to the local palate, has witnessed an increasing shift towards larger players who offer a wide array of standardized quality products (ethnic, western & new age) at competitive prices extensively available across varied formats, thereby effectively servicing both impulse and planned consumer demand. This organized sector, which includes large national players like Haldiram (Snacks), Balaji Wafers, Haldiram Foods, Bikaji, Pepsico, Prataap Snacks, strong regional players like DFM, Gopal Namkeens, Laxmi Snacks, KBB Nuts, Kishlay Foods, Afp Manufacturing and scaled new entrants like Guiltfree Industries – Apricot Food etc., has successfully increased its share in the total savory snack market from 40% in 2015 (USD 2.6 bn) to ~ 55% (USD 5.5 bn) by 2021 (Source: Various industry reports & discussions).

There has also been a spate of new entrants offering new age products with new propositions including healthy snacking, use of organic, vegan ingredients, healthy cooking methodologies like baked vs fried, innovative user-friendly packaging, new go-to-market strategies etc. Most of these players presently are small and operate in niche products and markets. Interestingly, many of these players are funded by PE/ VC/ HNIs.

Driven by the promising opportunity and recognizing the compelling need for scale across the entire value chain, we believe that as in the past, players will continue to invest in organic initiatives and inorganic actions, in order to:

• Expand their product offering to cover all major categories like ethnic snacks, wafers, extruded products, bridges etc.

• Regularly launch (own developed or acquired) new products in to maintain a high consumer engagement.

• Increase their distribution reach and depth with the intent to service both impulse and planned purchase by ensuring presence in as many Points of Purchase across micro, general, institutional and modern trade as well as through D2C and e-commerce channels.

• Build multi-locational, world class manufacturing and packaging infrastructure and back end supply chains (sourcing, storage and processing of raw materials), so as to support the expanding distribution network as well as to ensure consistent, high quality product availability all year round.

• Deepen and sustain their Brand Equity among consumers, trade and other stakeholders, through advertisements, celebrity endorsements, consumer and trade promotion schemes etc. Adopting a multi brand approach to service different markets is an acceptable strategic practice.

The Haldiram (Snacks) Group has been an exceptional case in point of successfully executing this dual strategy, wherein along with its organic expansion, it has aggressively acquired businesses across varying scale, products, brands and geographies (have made at least six acquisitions the past 5 years). This has catapulted the group to the enviable position of one of the India’s largest pure play snack food group with a wide footprint across categories, regions, consumption formats and an unmatchable franchise.

Interestingly, some other large pure play snack food companies, including Prataap Snacks, DFM Foods, Kishlay Foods, have effectively leveraged private external capital to follow a mix of such growth initiatives and have been able to successfully establish large scaled strong businesses. A notable new entrant  is the RP-SG Group which in a short span of 5 years has established its presence in healthy snacking category as well as the traditional mass-market category through its acquisition of Apricot Foods.

We believe that the industry today is at an inflexion point and is well primed for a “once in a lifetime” strategic consolidation cycle. This is particularly so for entrenched long term players as well as leading F&B/ FMCG groups like Adani Wilmar, Tata Consumer Products, HUL, Godrej Group, Dabur Group, Ruchi Soya, MTR-Orkla, DS Group to consolidate and/ or make a scaled entry into the sector. Such strategic initiative(s) would not only catapult them immediately into a leading market position in the sector, but also allow for extracting synergies, be it through cross selling opportunities with complementary own business lines, use R&D experience for new product innovations, optimizing supply chain and manufacturing infrastructure, leveraging own distribution network and online presence as well as enabling tenable advertisement, marketing and promotional budgets on account of a lower costs of customer acquisition, given their strong brand equity and goodwill.

While the strategic potential of the sector is apparent, the complex organization structures of unlisted players and the high valuation premium commanded by few listed businesses (likely driven by scarcity and governance), has created a valuation conundrum. On a broad basis, we believe that transaction multiples in this space could range between 1.5-3x sales or 15-25x EBITDA. Uniquely, potential listed consolidators are also commanding equally high market multiples, which are not only indicative of market growth expectations, but also offer such players an opportunity to leverage their stock as ‘currency’ for driving their strategic ambitions.

Hope to see some momentum in this space soon !