Industry Analysis: Food & Beverages

Submitted By:
Name Serial No. Roll No.
Arnav Patni 01 17030421015
Renika Garg 10 17030421046
Avani Bazaz 11 17030421016
Pankaj Hakim 18 17030421041
Jonath Simon Samuel 20 17030421030
Mellissa Nazareth 35 17030421037

Submitted To:
Ms. Aparna Pandey
Professor
K J Somaiya Institute of Management

16 September 2021
Order of Contents

1. Market Overview
2. History vs Present State of Sector
3. Industry Outlook
4. Demand & Supply
5. Contribution to GDP
6. FDI
7. Technological Advancement
8. Major Players in the Industry
9. Key M&A Deals & Investments
10. Growth Opportunities in Sector
11. Comparative Company Growth Analysis
12. ESG Analysis
13. Major Challenges faced by F&B Industry
14. Upcoming Trends in Food & Beverage Industry
15. Conclusion
16. References
Market Overview:

With a compound annual growth rate (CAGR) of 36.34 percent, the Food and Beverage
industry was valued at US$30.12 billion in 2015 and is anticipated to reach US$142
billion by 2020. Traditional operators control most of the market. So far, both Indian and
global brands and restaurant chains have not fully entered the market. Over the last
decade, the food and beverage industry has transformed, resulting in exciting new food
and beverage ideas as well as new and creative service aspects. Changing
demographics, rising disposable income, urbanization, and the rise of the retail industry
are all contributing to the market's expansion. Due to an increased sense of
consumption and awareness, as well as desire for quality products, India has
experienced sustainable packaging development in the food and beverage industry.
The fast-paced consumption that occurs in Indian culture, as well as the government's
ongoing support for the Agri-processing business, have contributed to the expansion of
the food and beverage industry in India. The growing spending power of the middle-
income group, the fast expansion of organized retail, and exports all contribute to the
market's expansion. As a result, more food and better packaging with longer shelf lives
are required to meet the people's dynamic and growing requirements. Due to the fast-
paced existence in big centers, as well as more wealth and a better standard of living,
the increasing trend of online meal delivery is also assisting industry growth.
Established players like as Zomato, Swiggy, and Dunzo, among others, are pursuing
the online meal delivery business, which entices customers to purchase frequently,
therefore raising the industry's overall food consumption rate. Over the next year, the
pandemic is projected to have a favorable influence on food and beverage
consumption. During the first two waves of the scarcity, the Indian economy
experienced a prudence-driven buying habit that drives consumers to acquire more food
and beverages for the uncertain future.
HISTORIAL VS PRESENT STATE OF SECTOR

Historically, the first presence of Food and Beverage is seen during the ancient times of
pilgrimage. Most people would look for safety and shelter under trees and forged into the
natural resources for food when away from their homes. With the growing threat of their
lives from wild animals and robbers, they began to look for an alternative. Dharamshala
and Chatrams eventually came up to house such people on pilgrimages to safety and
provide them with freshly cooked food.

From there on, many such safe houses of Maharajas and Mughals had opened for
travelers where not only food but beverages, stables, and storage, and much more. Thus
began the Food and Beverage industry comprising of both the food processing sector
and the retail sector. With the colonization and multiple dynasties and cultures coming
into India, the cuisine preferences changed, and new tastes were opened unto the
residents of India.

However, until the 1960s Indians preferred dining at the comfort of their homes and
averse eating “Outside food”. Most of the times Indian locals would back ‘dabbas’ or have
traditional lunches at local ‘Bhojanalaya’ eateries. Eateries and Dhabas got more popular
with railways being set up by the British.

It wasn’t until near independence that luxury hotels like Taj, the Oberoi, and the
Ambassador had set their chain of hotels and services. After independence, the
hospitality industry grew at a faster rate. India Tourism Development Corporation (ITDC)
was set up in October 1996 with the objective of developing and expanding tourism
infrastructure in the country and thereby promoting India as a tourist destination.

ITDC succeeded in achieving its objectives by promoting the largest hotel chain in India
and providing all tourist services such as accommodation, catering, transport, in-house
travel agency, duty-free shopping, entertainment, publicity, consultancy, and so on, under
a single window further pushing the Food and Beverages industry to where it is right now
at a large-scale Commercial Level.
Outlook of the Industry

The Sector can be divided into four major parts:

Food Retail Industry - As India moves towards digitalization, online grocery has
emerged and is dominated by players such as Big Basket, Gofers, and others.
However, because 50% of the population in India does not have access to the internet,
traditional retail formats continue to dominate the industry.

Food Service Industry in India - The Indian foodservice market is expected to reach
USD 95.75 billion by 2025, growing at a CAGR of 10.3% throughout that time. Domestic
and foreign private equity and venture capital funds have expressed strong interest in
the project. Players like as Zomato and Swiggy, who are key contributors to the food
service industry, have revitalized this sector.

Cold Storage Segment - Owing to the increasing urbanization and a rise in retail food
processing the demand for products that need efficient CS facilities has accelerated in
the country. India’s cold storage capacity is likely to reach 40.7 million metric tonnes by
2023, rising
8.2% from 2020, as per Colliers’ latest report, opportunities in Indian cold chain assets.

Dairy Sector - India has the largest bovine population of over 300 million,
producing 198.4 million tonnes of milk in 2019-20. Amul with the largest market share
is the biggest private player in the Dairy industry.
Demand and Supply Side

Demand

Household consumption pattern: food take lion's share of the wallet – Food and
beverages form the top consumption item in a typical Indian family’s consumption
basket. While all India average is 51% of the total spend, it is 45% in urban areas and
higher at 55% in rural areas

Supply

India is well positioned to leverage on its comparative advantage in terms of large

agriculture sector and livestock base on the back of burgeoning consumer base. With
the strong base in agriculture and livestock, India was able to emerge as the largest
producer of food - ranked first in production of milk and pulses and ranked second in
production of rice, wheat, and sugarcane.
Contribution of Food & Beverage Sectors

India’s GDP
The changing preferences of the upward mobile middle-class families from the urban
areas have given prominence to food processing sector and also fuelled the growth in the
last few years to make the industry the 5th largest in India in terms of production and
export growth. The food and beverages industry accounts for 3% of India’s GDP and
is the single largest employer in the country, with more than 7.3 million workforces.

India’s Export & Import

With the growth in the industry driven by the domestic demand, the industry has also
geared up for tapping the export potential. Location advantage as India is
geographically close to some of the top export destinations, increase participation of
private sector due to investments in the recent past and “Make in India” Campaign and
improvements in product and packaging quality have driven India Export in food &
beverage Industry.
US is the top destination for India’s exports of processed food, followed by Vietnam,
Iran, Saudi Arabia and UAE. Rice is the key food product exported by India, followed by
meat preparations, gaur gum, wheat and other cereals.

FDI Investments in Food & Beverage Industry

The food sector in India has successfully established its presence. India's food
ecosystem offers
enormous investment opportunities with stimulating growth in the food retail sector,
favourable economic policies, and attractive fiscal incentives. India is the world's sixth-
largest food and grocery market. In India, the food and grocery retail business
accounts for over 65 percent of the total retail market.

FDI Facts F&B Industry:

• 10.4% share in India's exports.
• 1.96% FDI equity inflows over April 2014 – March 2021.
• $10.37 bn FDI Equity inflow from April 2000- March 2021.
• 100% FDI Allowed in food processing industry and single brand retail & 51% in multi-
brand retail
• Total overall FDI Investments of US$18.3 Billion India's food processing industry is
one of the world's largest, with a projected production of $535 billion by 2025-26. The
Retail food market is majorly dominated by Food Grocery (growing at CAGR 25%) and
Food Services (growing at CAGR 15%).
Technological Advancement
Indian food and beverage sector is looking at modernization to keep pace with the
ongoing trends and regulations. Food and Beverage companies in India are now
investing in technology. Companies are realizing that if they do not have the right
systems in place, all the way from recipes, its ingredients and not being able to trace the
products in the supply chain they will be at a disadvantage

Agriculture – In November 2020, Prime Minister Mr. Narendra Modi highlighted how
Artificial Intelligence-based Agri-tech applications are set to unleash value in agriculture.

Cloud Kitchen - Cloud kitchens are expected to see a 17.25% rise in CAGR by 2030.
Recently, Wendy’s Co. has struck a deal with India’s Rebel Foods to open about 250
cloud kitchens across the country, one of the most ambitious efforts.
Major industry players in Food & Beverage Industry

The top ten global F&B companies were Nestlé ($77 billion in food sales), PepsiCo ($66
billion), Coca Cola ($46 billion), JBS ($44 billion), Archer Daniels Midland Company and
Anheuser Busch InBev (both $43 billion), Mondelez ($35 billion), Sab Miller and Tyson
Foods (both $34 billion), and Cargill ($33 billion). The other biggies were Mars (11th
rank, $33 billion), Unilever (12th rank, $31 billion)), Kraft (19th rank, $18 billion), and
ConAgra Foods (24th rank, $15 billion).

Among the top companies in India are Amul, Godrej, Dabur, PepsiCo, Coca Cola,
Nestlé, Britannia, ITC, Parle, Cadbury India, Hindustan Lever, and MTR Foods.
Recent M&A Deals and Key Investments in Industry:

1. Feb 2021- Kottaram Agro Foods acquired by Tata Consumer Products Limited
for 155.8 Crore
2. Sep 2020 -Eastern Condiments acquired by Orkla for 1,356 Crore
3. May 21- The government is seeking expressions of interest by June 17 for an
INR 11k crore food processing PLI scheme.
4. April 21- The government of Odisha has approved investment proposals worth
over INR 2,570 crore in the metal, cement, chemical, plastic, food processing,
and manufacturing sectors, which will create 2,755 jobs.
5. February 21- Hatsun Agro, a dairy product manufacturer, has started production
at its new facility in Solapur, Maharashtra. It's a wholly automated dairy plant that
costs INR 130 crore to build. It has a daily capacity of 6 lakh litres of milk and will
produce milk, yogurt, curd, and other dairy products.
6. January 21- Amul plans to invest INR 5,000 crore in milk processing facilities
over the next five years.
7. In November 2020, Flipkart announced the launch of its first grocery fulfilment
centre in Lucknow that will create over 500 direct jobs. The facility will support
grocery products
8. In June 2020, Convergent Finance LLP, the Mumbai-based private equity fund,
invested Rs. 107 crore (US$ 14.1 million) in Jyoti International Foods, an end-to-
end supply chain solutions provider in Indian food services industry.
9. In June 2020, Milkbasket, a grocery delivery platform, raised US$ 5.5 million as
part of its ongoing series B round led by Inflection Point Ventures.
Company Growth Analysis:

To find the extent of growth in the sector we can take an example of 3 companies
namely Britannia Industries, Varun Beverages Ltd & Hindustan Foods Ltd. The growth
amongst these companies pre, during and post covid can be extrapolated to understand
the growth of the entire sector during this period.
Key Findings:

1. We can see that the Revenue for the companies has grown at a slower
place from 2019 to 2020 but when Covid hit, it was a boon for the
companies because it helped them propel greater sales as indicated by
their sales numbers.
2. Compound Sales Growth since the last 3 years for Britannia Industries
has been 10% whereas for Varun beverages it is growing at 17% and for
Hindustan Foods it is growing at a rate of 115%.
3. Compound Net Profit Growth since the last 3 years for Britannia Industries
has been 23% whereas for Varun beverages it is growing at 23% and for
Hindustan Foods it is growing at a rate of 80%.
4. The General Trend in the F&B Industry is that the COVID pandemic has
opened a new dimension to retail and the way the company sells its
products and as a result we can see their financial performance
outperforming their own previous year’s figures.

ESG Analysis of F&B Sector:

The word of the year in 2019 was "climate emergency," and the word of the year in
2020 will most likely be "coronavirus."
Both are worrisome crises, and crises tend to accelerate trends. The integration of
Environmental, Social, and Governance (ESG) investment into the mainstream has
increased due to global instability and human fragility.
Until now, ESG investment was only one of several topics. The possibilities have now
altered, and the link between material risk and returns is becoming increasingly
important for investment decisions.
If a firm meets all the environmental, social, and governmental criteria, it is said to be
ESG compliant. ESG funds carefully evaluate these firms and only include shares in
their portfolio that are truly ESG compliant.
Break Down of ESG:

1. E of ESG: The letter E stands for Environment, and it refers to the protection and
conservation of natural resources. Because India is taking climate change and
pollution control more seriously than ever before, a company that follows best
practices when it comes to environmental protection around its factories and
places of work is less likely to be impacted by regulations that could force plant
shutdowns, etc. than a company that ignores the environmental impact of its
operations. Aside from legislative requirements, it is critical for businesses to
embrace greener operating methods in order to ensure the sustainability and
upkeep of the environment and our resources for future generations.

2. S of ESG: The letter S stands for social. People are at the heart of any business.
Companies that are socially developed treat their employees with dignity and
care about their well-being. A socially conscious company, for example, displays
employee safety, protection against work risks, and equitable treatment of both
genders, among other things. Socially responsible businesses, in addition to
enhancing their workers' work-life balance, use CSR programmes to extend their
goodwill to a variety of socioeconomic problems. Employees and other
stakeholders alike appreciate and trust socially responsible firms, which goes
without saying.

3. G of ESG: Governance is represented by the letter G. This is the basis on which

the business is judged. However, just adhering to rules and checking boxes on
audits does not make a firm compliant in terms of governance. What this implies
is that the firm is ethical and transparent when it comes to financial disclosures
and can continuously meet the highest standards of governance. They are
unaffected by regulatory reforms, no matter how harsh they are, because they
take governance seriously. Investing in such firms is consequently, to a large
degree, risk-free for you as an investor.
Environmental Factors:
Healthful Green Ingredients: Consumers are looking for items that may help them live
a more sustainable and socially responsible life, according to 65 percent of them. They
do so largely by glancing at product component lists, especially as more firms respond
to public demand by employing clear, easy-to-understand food labelling methods.
People like natural components in general, and a lot of chemical ones will certainly put a
lot of people off. Many businesses try to cut corners by giving their goods deceptive
names, circumventing the law by using labels that, while legally correct, are meant to
disguise the fact that their products aren't as healthy as they say. This technique may
succeed for a short period of time, but it will ultimately backfire as more buyers turn to
internet review websites to read product reviews before making a purchase. When a
brand is exposed as deceiving its customers, the reputational harm caused by
mislabeling is likely to have a long-term negative impact on sales.
Sustainable Sourcing: Another important trend is customers' preference for food items
created with responsibly sourced components. The key criterion is if the components
were produced in an environmentally friendly manner. The specifics vary by industry,
with different sectors taking different approaches and using labels to identify which
producers are adhering to defined sustainability standards, such as the California
Sustainable Wine Growing Alliance, which assigns labels to wines produced in
qualifying vineyards based on metrics like water, energy, and nitrogen use. Another
consideration is the distance travelled by the product from its site of manufacturing to
the supermarket (often referred to as "food miles"), as this has an influence on its
carbon footprint. There is a strong preference for buying locally produced food wherever
feasible, and companies who want to counter this perception must demonstrate that
they excel in other elements of sustainability, such as utilizing 100% natural and healthy
ingredients.
Social Factors:
A long-term strategic focus on the social aspect offers a unique chance to help
rediscover our industry's position in society and our mission as built environment
practitioners. We are continuously creating the future of our cities; we construct not only
houses, but also neighborhoods and communities, and we are in charge of supplying all
the physical infrastructure that cities require to thrive. Our business must reconsider
how we might work together to address societal issues such as poverty, inequality, and
mental health. From a ‘S' standpoint, this is what distinguishes the constructed
environment. The terms "S" pillar and "Social Value" are sometimes used
interchangeably. These words, however, allude to two distinct yet complimentary
characteristics. The conventional ESG agenda's "Social" pillar often focuses on
company policies and practices related to human rights, business ethics, supply chain
management, diversity and inclusion, and social repercussions stemming from
corporate activities. The term "social value" refers to the influence that buildings and
locations have on individuals and communities in the built environment.
Governance Factors:
Governance is a wide term that refers to a company's rules, standards, information
disclosure, audits, and compliance, as well as its board and management structures.
Investors, for example, want to know if a company's bookkeeping is accurate and
transparent, as well as whether its business operations are ethical. They also prefer
firms with a board of directors that is both accountable and diverse, as well as rules that
encourage shareholder participation. Governance methods can be screened in the
same way that environmental and social elements are. Negative screens can be used to
exclude firms whose governance rules and practices put them at an unacceptable risk
level. It might be a firm that engages in legally or morally dubious actions, or one that
fails to effectively handle long-term business risks, such as those posed by climate
change. Companies with strong and transparent governance rules and practices can be
identified using positive screening.

ESG and the Food Industry

Nestle was the only food business in the Top 100 in a recent Wall Street Journal
assessment of 5,500 publicly listed companies on ESG criteria. This isn't good news for
an industry that uses 70% of the world's fresh water and produces nearly a quarter of all
greenhouse gas emissions.
Environmental challenges like as soil degradation and deforestation, as well as other
ESG issues such as racial and gender equality, and fairness in trade and labor
practices, must be addressed by the industry, as they must by most others.
Traditional leadership will have to shift in order to address these challenges. It means
that leadership teams must take charge of their firms' challenges and devise plans to
address them.
The low ranking of the food business on the recently issued ESG list is depressing. Any
food firm that is behind the times on these problems should be embarrassed. For an
industry that relies on market research, however, it should serve as a gold mine of
consumer insight: becoming more socially responsible will not only be good for the
environment, but it will also help win over a new generation of customers who want food
produced by firms that care.
Major Challenges Faced by Food & Beverages Industry in 2021

1. Enforcement of Plastic Ban

Food and beverage firms and manufacturers are currently working to make the food
manufacturing process more environmentally friendly by implementing a variety of
recycling techniques. To address the present challenges in the food and beverage
sector, green business practices will become increasingly essential in 2021, from
manufacturing to packaging and supply chain management.

2. Stringent Regulatory Landscape

Most of the food and beverage firms blindly follow regulatory guidelines. However,
constant changes in surplus production, waste disposal, food quality, raw materials, and
paperwork are proving to be substantial roadblocks for food and beverage producers.
To meet these difficulties, food and beverage firms must enhance their business
operations at all levels, from manufacturing to distribution.

3. The Pervasive Presence of e-Commerce

Improving internet exposure is another key problem that the food and beverage sector
will face in 2021. Consumers' expectations have risen as they have grown more tech-
savvy and digitally aware. Food and beverage firms, unlike e-commerce businesses,
are still trailing behind when it comes to assessing their internet presence. With the
advent of a new market, the changing nature of consumer spending, and the
advancement of technology, it is past time for food and beverage firms to engage in
internet marketing. This can also help them better service their consumers and stay
competitive.

4. Rise of Veganism
The demand for meat and other goods has decreased significantly as a result of the
growing number of vegan consumers. The food and beverage sector has been faced
with a significant problem because of this. Today's food and beverage producers must
uphold their brand's image for ethical treatment of animals. As a result, to keep the retail
and supply chains operating, firms have developed meat-free alternatives.
Upcoming Trends in Food & Beverage Industry in 2021

1. An Optimized Supply Chain

Companies in the food and beverage industry must improve their supply chain
operations to make them more flexible, robust, and transparent in real time. They will be
able to shorten time to market, eliminate costly inefficiencies, save money, improve
operations, and increase sales and profitability because of this.

2. Use of Modern Technologies

Food and beverage firms are using AI and machine learning, automation, and advanced
analytics to decrease human error, reduce product wastage, save storage and shipping
costs, shorten lead times, improve service time and quality, and generate happy
consumers.

3. Transparency and Sustainability

Consumers want to know more about their food's origins and production methods. To
preserve their competitive advantage and keep their customers happy, food and
beverage companies must improve their transparency and sustainability game to
guarantee that their customers know how humane and sustainable their goods are.

4. Waste Reduction
Food waste reduction is critical for businesses not just to save money, but also to
decrease their environmental effect and improve their long-term sustainability.

5. Increase in Demand for Plant-Based Foods

Consumers are looking for more plant-based foods to help them get in shape, lose
weight, and live a better lifestyle. As a result, food and beverage companies all over the
world are starting to provide vegetarian/vegan versions of their goods.
Conclusion

The national lockout sent the restaurant sector into a tailspin, with some estimates
predicting that roughly a quarter of all eateries will close by the end of 2020. According
to the National Restaurant Association of India, India's $50 billion restaurant business
would lose $9 billion in 2020. (NRAI).

Since the lockdown was removed, the industry has been adapting and innovating to
overcome these difficulties and recover profitability. To earn consumer confidence and
increase income, the industry is introducing new service offerings and COVID hygiene
procedures.

With a focus on health, safety, and security, contactless solutions, as well as self-
service stations, will be used. Delivery robots, computerized menus, and in-app ordering
are some of the most popular contactless solutions. Face recognition and contactless
biometrics are being used in the hotel industry to allow visitors to self-check-in and
check-out, unlock rooms, and operate elevators using face scans.

To restore commercial traction, the sector has utilized the downtime caused by the
epidemic to invest in customer-centric technology. The industry has made contactless
guest engagement a priority to allow automatic conversational connection with guests
Customers and service representatives. Touchless solutions based on AI and digital
payment alternatives are set to become the new standard in the hotel business in the
post-COVID age, changing industry norms.

The sector is undergoing a change that will be centered on digitalization. Services will
become more personalized and customer-centric, as well as more innovative service
offerings. Health and safety will be standardized, operations will become less labor-
intensive, and balance sheets will become leaner. All these improvements will improve
the consumer experience and establish new industry standards in the post-COVID
future.