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India Food and Drink Report Q1 2011
Business Monitor International, Dec 2010, Pages: 96
The India Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on India's food and drink industry.
This outlook on India’s food and drink sector remains bullish, as we continue to see positive signs of growth in the Indian consumer sector, driven by the country's high GDP growth, surging private consumption and favourable demographics. Indeed, India remains a very attractive investment prospect that continues to outperform on the back of high GDP growth, surging private consumption and a population of more than 1.16bn in FY09/10. The country's rapid economic expansion has triggered rising disposable incomes and accelerated urbanisation, with very positive implications for private consumption growth. Between 2009 and 2014, private consumption levels are forecast to grow by an average of 7.1% per annum, fuelling the demand for consumer goods. While the outlook over our forecast period remains positive, the short-term outlook is a bit cloudier. Although domestic demand has proven to be resilient over the last few quarters, we believe that the rate hikes over the past year will have a dampening effect on private consumption and investment going forward, with food price inflation a particular concern.
Headline Industry Data:
2010 food consumption growth = +7.3%; forecast to 2015 = +54.3%
2010 alcoholic drink value growth = +16.9%; forecast to 2015 = +81.6%
2010 soft drink volume growth = +9.3%; forecast to 2015 = +51.7%
2010 mass grocery retail sales = +32.6%; forecast to 2014 = +222%
Key Company Trends
Consolidations in Spirits Sector – In August it was reported that India's leading spirits producer United Spirits, a subsidiary of Indian alcoholic drinks major UB Group, is planning to acquire two domestic distilling firms, Pioneer Distilleries and Sagar Distilleries, to capitalise on the country's favourable demographics and robust economic growth prospects. United Spirits' recent financial results reinforce our conviction that a larger presence in India is pivotal to the company's long-term prospects, it posted a growth rate of 22.4% and 25.5% year-on-year (y-o-y) in sales and operating income, respectively, for the quarter ending June 2010. United Spirits' massive exposure to India's drinks sector - 80.1% of its total sales for the year ending March 2010 originated from India, will continue to propel the company's growth, in our view.
Wine Sales Taking Off – In further United Spirits news, in October the company announced that it has earmarked an investment of INR10bn (US$224mn) over the next two to three years to cope with growing domestic wine consumption and to reduce its reliance on contract bottling. USL's investments will be channelled into building additional primary distillation facilities and increasing its domestic bottling capacity. This move ties in with our expectation that India's domestic wine market will make a strong recovery after suffering from setbacks such as a global supply glut, the Mumbai attacks and rising excise duties. Also in October, The Economic Times reported that Indian alcohol group Aspri Spirits has set its sights on the country's champagne market, after the group agreed a deal to sell two champagnes from the range of French producer Champagne Lombard.
Key Risks To Outlook - Despite our bullish outlook on India's drinks sector, we do see certain risks possibly limiting the sector's potential for growth. Over the near term, inflationary pressures in India will continue to place downside pressure on India's domestic demand. With alcoholic drinks still largely perceived as a luxury item, the country's low levels of GDP per capita US$1,136 in 2009 - will continue to inhibit discretionary spending and a rapid acceleration of premiumisation momentum. Also, cumbersome and time-consuming state-by-state legislation governing aspects of high value business, including alcohol taxes, could impede company expansion efforts in India.
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