Mrs Bectors Food Specialities Ltd Management Discussions

Global Economic Scenario

The fiscal year 2022-23 will go down in history as the year of paradoxes. The waning of the increase in the virulent disease coincided with a major unplanned occurrence in the form of the Russia-Ukraine war, which has subsequently morphed into a major worldwide geopolitical confrontation. Following escalation on the Taiwan/Korean peninsula, global energy and commodity prices have become even more volatile.

Central banks have acted in lockstep, hiking key policy rates to combat sticky inflation. During the year, benchmark rates and equities remained volatile. Despite evidence of lowering inflation and a slowdown in job opportunities, there are no indicators of a firm shift in the pivot by central banks in advanced economies (AEs) towards an interest rate regime reversal.

The failure of certain mid-tier banks in the United States in March 2023 exacerbated the situation. The fallout from such a shake-up is expected to have a cascading effect on deposit patterns in the banking system across AEs. Further, de-dollarisation appears to be a recurring trend, with most countries employing alternative payment and settlement systems in local currency.

As per the International Monetary Fund (IMF), global economic growth is expected to decline from 3.4% in 2022 to 2.8% in 2023, before settling at 3.0% in 2024. AEs are expected to witness an especially pronounced growth slowdown, from 2.7% in 2022 to 1.3% in 2023 (CY). Global headline inflation is set to moderate from 8.7% in 2022 to 7.0% in 2023 due to lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflations return to target seems unlikely before 2025 in most cases.

Overview of the World Economic Outlook Projections (per cent change, unless noted otherwise)

	2022	2023 (P)	2024 (P)
World Output	3.4	2.8	3.0
Advanced economies	2.7	1.3	1.4
- United States	2.1	1.6	1.1
- Euro Area	3.5	0.8	1.4
- Japan	1.1	1.3	1.0
- United Kingdom	4.0	-0.3	1.0
- Canada	3.4	1.5	1.5
- Other Advanced Economies	2.6	1.8	2.2
Emerging Market and Developing Economies	4.0	3.9	4.2
- Emerging and Developing Asia	4.4	5.3	5.1
• China	3.0	5.2	4.5
• India	6.8	5.9	6.3
• ASEAN-5	5.5	4.5	4.6
Middle East and North Africa	5.3	3.1	3.4
Emerging Market and Middle-Income Economies	3.9	3.9	4.0

Source: IMF staff estimates in April 2023 WEO

Indian Economy Overview

India is the fastest growing major economy in the world with its real GDP growth estimated at 7.2% in 2022-23. The Indian economy continues to show resilience to external shocks caused by the prolonged war between Russia and Ukraine, higher inflation, tighter monetary conditions, supply chain challenges, etc.

According to the World Bank (WB), India will remain the fastest-growing major economy in terms of both aggregate and per capita GDP of the largest emerging market and developing economies (EMDEs). WB has forecasted Indias GDP growth at 6.3% for 2023-24 and projects slight pick-up through 2025-26, with estimates of Indias GDP growth at 6.4% in 2024-25 and 6.5% in 2025-26.

IMF expects India to become a US$ 5 trillion economy by 2025-26, while the government, with the support of lower global uncertainties is also taking concrete steps to achieve the milestone. Various measures undertaken to boost economic growth such as higher budgeted capital expenditure of Rs. 10 lakh crore in 2023-24 for infrastructure development, thrust on domestic manufacturing, formulation of the National Monetisation Pipeline (NMP) and the National Logistics Policy (NLP), and commitment to energy transition are major steps in the countrys economic journey.

This transformation is expected to fuel robust domestic consumption, technology-enabled development and revival in credit growth, among others. In addition, growth-enhancing policies such as the production-linked incentives (PLI) scheme, Atmanirbhar Bharat and PM Gati Shakti are expected to have a multiplier effect on economic growth, jobs creation and consumption.

Resilience of the Indian economy is reflected in the domestic economic situation coping well with external shocks. Real GDP growth for 2023-24 is projected at 6.5%, which is amongst the highest in the world. Inflation, which started on a positive trend in April 2023 at 4.70% is anticipated to remain in the moderate zone for the ongoing fiscal year despite certain shocks from adverse climate change impacts.

However, expectation of a record rabi food grain production bodes well for food prices outlook and growth in general. It is probable that in 2023-24, average CPI (consumer price inflation) would be around 5-5.2%, compared to 6.7% in 2022-23, thus giving comfort to regulators.

The prospects of the Indian economy therefore appear bright with several factors coming together, including a large youth and consumer base with rising per capita and disposable income, coupled with forward-looking government policies that are facilitators of trade and commerce. Hence, there is opportunity in Indias unfolding consumption story.

Government thrust on packaged foods industry

Under the leadership of PM Modi, India has spearheaded a range of efforts to introduce fundamental changes to the economy, such as increasing digital transactions, enhancing efficiency, streamlining the tax regime, etc. This restructuring of the economy has created room for growth and improvement in areas such as food and product retail.

Indias food processing sector is one of the largest in the world and its output is expected to reach USD 535 billion by 2025-26, as per the National Investment Promotion and Facilitation Agency. It lies at the heart of the governments Make in India initiative and resonates with the call for vocal for local.

New initiatives such as planned infrastructure spend of USD 1 trillion to boost the rural economy have put the food processing sector on a high growth trajectory. The Pradhan Mantri Kisan Sampada Yojna for example is a comprehensive package which shall create modern infrastructure with efficient supply chain management from farm to retail outlets. More recently, boosting the Atmanirbhar Bharat vision, the scheme of Formalization of Micro Food Processing Enterprises (FME) is being rolled out with an outlay of Rs. 10,000 crore.

India not only has a large domestic market but also abundant raw material. Increase in size of the food processing industry can be attributed to changing consumption patterns due to urbanisation, change in workforce gender composition, and growing consumption rates. Additionally, over two-thirds of Indias 1.4 billion people are young with growing incomes, which also creates a large market for food products. Increasing organized retail penetration is offering a wide range of options to consumers too.

The government has launched Production Linked Incentive Scheme for Food Processing Industry (PLISFPI) to support creation of global food manufacturing champions commensurate with Indias natural resource endowment, and support Indian food brands in international markets with an outlay of Rs. 10,900 crore.

As per the Ministry of Food Processing Industries, incentive under the scheme would be paid for six years ending 2026-27 and its implementation would facilitate expansion of processed food output to Rs. 33,494 crore and create employment for nearly 2.5 lakh people by the year 2026-27.

Indian packaged foods industry

As per Technopak analysis, the Indian packaged food retail market was valued at Rs. 9,378 bn in FY2023, contributing 18.9% to the total food and grocery retail market which was valued at Rs. 51,640 bn in FY2023. Though Indian food retail remains dominated by unbranded products, food in packaged form is growing at almost double the pace of the overall market and is expected to contribute 20.5% of the total food and grocery sales in India by FY2025. Packaged staples (37%) are major contributors to total packaged food market, followed by other packaged food (36%) such as snacks, bakery, biscuits etc., dairy (19%), beverages (6%) and meat (2%).

While sales through organised retail channel contributed 26% of the packaged food sales in FY2022, balance sales of packaged food came through traditional channels (unorganised channel). While almost 42% of the packaged food sales in south India is through modern retail channels, 25% packaged food sales in west India is through modern retail. Owing to relatively lower presence of modern retail in north and east/north-east India, share of packaged food sales through modern retail is low at 18% and 14%, respectively.

Yet another channel has emerged that is hyperlocal deliveries comprising delivery in a time-bound period, for instance 10-minutes. This model feeds on consumer expectation of instant gratification and works on the "dark stores" concept that has opened up yet another consumption avenue for the packaged foods industry.

Western India is the biggest market for consumption for packaged food, followed by south and north regions. East/ north-east region is relatively underpenetrated in terms of modern retail and grade-A grocery stores.

Other packaged food market (snacks, bakery, biscuits, etc.) is valued at Rs. 3,383 bn in FY2023 and is seeing significant growth post-Covid due to urbanization, changing consumer tastes and lifestyle, and variety of packaged food that is readily available. It is estimated to grow at a 15% CAGR by FY2026, which is higher as compared to ~8% CAGR of the overall packaged food industry growth rate.

Rapid urbanisation, growing middle-class population, inclination of millennials towards the western lifestyle, rising disposable income, improving retail infrastructure, internet penetration in rural areas, and technological breakthrough are key factors set to drive growth of Indias packaged food market.

During 2022-23, the domestic packaged food industry witnessed sluggishness, being impacted by high commodity prices, rising interest rates, and a generally subdued sentiment. During the year, the major challenge confronting the food industry was managing inflation in the cost of key commodities like wheat, milk, sugar, palm oil, etc., all of which were trading at multi-year high prices.

Yet, though commodity prices were volatile and inflation was at unprecedented levels, post-Covid stabilisation and resumption of economic mobility supported growth throughout the year. India continued to remain a leading spot with robust domestic demand.

Global warming is also having a significant impact on food availability and the overall environment in general. Thus, accelerated adoption of sustainability initiatives is observed across the board for corporates to adapt their business model to climate change factors.

Indian biscuits and bakery industry

Biscuits and bakery products, a significant part of the Indian packed foods industry, are consumer staples and everyday consumption items that are an essential component of the consumers grocery basket. Over the years, uptick in economic growth has shifted the consumption profile to packaged and branded food products, with growing consumer desire for better quality, taste and food safety. Further, with such products being licensed by the food regulator has further increased customer trust in these products. Additionally, price difference between packaged food products over loose items has narrowed over the years, thus creating a further consumer thrust towards these products.

As per Technopak analysis, the Indian biscuits and bakery retail market is valued at Rs. 570 bn and is expected to grow at a 10.5% CAGR over the next three years to reach around Rs. 770 bn by FY2026. The market has grown at an 8.2% CAGR in the last 3 years.

Biscuits and other snacking bakery products such as rusks, wafers and tea cakes contribute almost Rs. 513 bn or 90% to the total market. The remaining 10% is contributed by breads, (buns, pizza base, loaves), which account for Rs. 57 bn.

Indian biscuit market is dominated by branded players with a 95% share. Penetration of branded biscuits will continue to grow because of increasing consumer preference and disposable income. Non-branded biscuit is dominated by small bakery units, cottage and household type manufacturing units, which thrive on catering to local taste and close relationship with retailers.

Evolution of distribution channels has also played a role in this consumer shift, with hypermarkets and supermarkets driving packaged food sales. In addition, e-commerce channels offering consumers a plethora of choice have also nudged the shift.

India has the lowest per capita biscuit consumption in the world at 2.5-2.6 kg, compared to over 4.25 kg in South East Asian countries like Singapore, Hong Kong, Thailand and Indonesia, and more than 10 kg in the US and Western Europe. This gap creates an opportunity for market players to grow and extend the organised market for biscuits and bakery items over a multi-decade period.

Biscuits market

Biscuit is a hygienically packaged nutritious snack food available at competitive prices, pack sizes and tastes. Biscuit is consumed by people from all segments of society, particularly children, in both rural and urban areas. Growing health awareness, innovation by large organised players, easy access to products, rapid urbanisation, and rising disposable incomes have contributed to Indias biscuit consumption story.

A biscuit is a flour-based baked food product. Biscuits are typically flat, hard and unleavened. They come in both sweet and savoury varieties, with a wide range of flavours, shapes and ingredients. Sweet biscuits may include sugar, chocolate, icing, jam, ginger or cinnamon, while savoury biscuits can resemble crackers and have flavours like cheese, herbs, etc.

Biscuits priced below Rs. 100/kg are classified as mass-end and comprise the glucose category. Biscuits priced at Rs. 100-200/kg are classified as mid-premium and comprise the Marie biscuit and crackers categories. Biscuits priced above Rs. 200/kg are categorised as premium and comprise the cookies, digestives and cream categories. The market for mid-premium and premium biscuits is expected to grow to Rs. 504 billion by 2024-25 at a 9.5% CAGR, which is faster than the mass biscuit market growing at around 8.5%. This growth of non-glucose segment is a reflection of the changing consumer behaviour that prefers mid and premium biscuit categories such as cookies, cream, crackers (salty and non-salty), and digestive biscuits.

Biscuit consumption profile has transformed over the years, in line with the premiumisation trend witnessed across other product categories. Broader consumption of conventional products such as glucose, milk and Marie biscuits has given way to premium products such as cookies, cream wafers, centre-filled biscuits, etc. Accelerating this trend are manufacturers that are developing and bringing to market a variety of premium, flavourful and even experiential biscuits that are finding resonance with consumers, especially in urban areas.

Yet another discernible trend is preference for healthy and nutritious biscuit products that are catching consumer attention due to their healthy snacking proposition. Further, innovation in packaging such as availability of a smaller quantity of biscuits packed separately within a larger packaging is also driving sales of such packs, especially meeting the on-the-go snacking demand among consumers.

Demand for healthy and clean-label products, such as gluten-free, low-calorie, low-fat and high-fiber biscuits are the primary factors driving market growth. Introducing innovative shapes, new flavours, attractive packaging, and healthier alternatives attract consumers and contribute to market expansion. Additionally, urbanisation and growth in disposable income are driving growth of the biscuits market. As people become more affluent, they are spending more on snacks and convenience foods, primary among which is biscuits.

Based on product type, the Indian biscuits market is divided into crackers and savoury biscuits, and sweet biscuits. Crackers and savoury biscuits are further segmented into plain and flavoured biscuits. Sweet biscuits are further segmented into plain biscuits, cookies, sandwich biscuits, and chocolate-coated biscuits. The sweet biscuits segment is expected to account for a majority of the market share. This is due to sweet biscuits finding favour with all segments of consumers and being preferred due to their taste and easy accessibility. Some sweet biscuits are made with whole grains, nuts and seeds as well to cater to health-conscious customers. These biscuits offer health benefits, such as increased fiber intake and reduced risk of heart disease. Savoury biscuits are also prevalent and they are growing in popularity due to increasing demand for healthy snacks.

Based on packaging, the biscuits market is divided into pouches/packets, boxes, cans/jars and others. The pouches/packets segment holds a significant share in the overall packaging segment. Most manufacturers bundle biscuits in tight wraps because, unlike loose packets, consumers equate these with firm non-broken products and this is a critical consumer requirement that is also growing in popularity due to the increasing demand for healthy snacks. The cans/jars segment is on a growth trend too due to increasing consumer preference towards premium packaging options for bakery products and with a group eating value offering.

Biscuits market is one of the fastest growing of all sectors in the fast-moving consumer goods (FMCG) category and the market is on a growth path, anchored on key drivers.

Industry innovation: Due to high level of household penetration, potential for growth in biscuits is immense.

The possibilities for increasing consumption through innovative, healthy and superior offerings in this category are numerous. Further, as consumers become more health-conscious, they are demanding biscuits that are made of healthy and even traceable ingredients. Assessing the type and composition of ingredients on product packs is becoming a common habit among consumers. Manufacturers are responding by introducing biscuits that are made of whole grains, oats, honey, nuts, seeds and fiber and protein-rich ingredients. Further, thrust on millets, especially by the government will pave the way for an increasing number of manufacturers to make biscuits with millets.

New flavours to sustain consumer excitement: Introduction of new biscuit flavours that appeal to a larger consumer base is a constant endeavour among manufacturers. Further, development of new biscuit formats such as bite-sized biscuits and biscuits meant to be eaten on-the-move is also driving growth of the biscuit category. In addition, use of new technologies such as high-pressure processing to develop biscuits that have a longer shelf life is also an innovation helping drive growth of the biscuits market.

Competitive intensity: The biscuits market in India is highly competitive, with a number of large and well-established players, smaller regional participants and the unorganised sector. This competition can make it difficult for new entrants to gain a foothold as they have a strong brand presence, wide distribution network and customer trust in their products. They are also making investment in constantly innovating and launching new products to attract and retain consumers. In addition to competition from established players, the biscuits market also faces competition from other snack food categories such as chips and other snacking items.

Export market - Biscuit

As per Technopak, Indian biscuit exports has maintained a share of ~2% of total global exports by value since 2019. India has exported USD 180-260 mn worth of biscuits per annum in the period 2019-22.

Indias biscuit export market and share in total world exports

Indias share of world exports (by value) USD mn	2019	2020	2021	2022
Total exports (world)	8168	8489	9667	10128
Indias exports	181	168	200	266
Indias share	2.20%	1.98%	2.07%	2.63%
Indias share of world exports (by volume) 000 tons	2019	2020	2021	2022
Total exports (world)	3,531	3296	3,677	NA
Indias exports	149	141	173	216
Indias share	2.30%	4%	4.70%	NA

Source: Technopak Analysis HSN:190531 Year Indicates CY NA - Not Available

Even during the pandemic, the biscuit market was stable as consumers stacked up on long shelf-life items, including biscuits. Consumers preference for convenient and healthy snacking options specifically drove demand for nutritious oat and nut-based biscuits.

The most recent trend, "food-on-the-go", has become a significant factor in driving the global biscuits market due to convenience in carrying such products. In addition, frequent launches of new formulations in the basic product, such as low-fat, gluten-free, low-carb, organic and high-fiber biscuits are expected to fuel the markets growth. In terms of segmentation by type, sweet biscuits are the fastest-growing sub-segment owing to their taste and incorporation of healthy ingredients.

Few growth drivers of the biscuit market include:

Increasing profitability by launching premium and larger pack sizes:

To tap the younger demographics, brands are strategically expanding their offerings by addition premium products to their basket. The demanding Indian consumer expects his favorite brand to come-up with a premium range of products to cater to changing demands. To capture a bigger share of the wallet and build a strong brand loyalty among such consumers, the brands have introduced a set of premium products in their range. Brands offer discounts or offers on larger packs to increase consumption and scale.

Active lifestyle and demand for biscuits and cookies in snacks:

Increasing consumer awareness, urbanization and people moving to cities for work where both spouses are working, and readily available convenience bakery items, households are seeking variety and are ready to experiment. With ease of availability of different ingredients used in products, consumers are also seeking premium, gourmet and exotic products to satisfy their desire to indulge. This shift has resulted in innovative products development.

Offerings which are less in calories and have healthy benefits:

Active lifestyles of consumers and availability of convenient food choices are increasing demand for healthy biscuits. Concern for health and wellness is becoming a key consideration for snacking. Healthy biscuits with high fiber digestive ingredients and sugar substitutes such as honey, fruits and dark chocolate are a rapidly growing category.

Usage in food services

Increase in out-of-home and online consumption of foods is directly supporting growth of Indian bakery and biscuit market. Most food service formats like QSRs, cafe, restaurants and hotels have cakes, cookies, puddings or pies as their dessert menu. The increase in penetration of organized retail is fuelling consumption of the allied sector.

Bakery market

The Indian bakery market was valued of approximately USD 10.1 billion in 2022. The market is estimated to grow at a 9.6% CAGR between 2023 and 2028 to reach a value of USD 17.44 billion by 2028.

Bread is the cheapest and basic instant food available for consumption. Though bread is not yet a fully staple food in the country, its consumption has increased significantly over the years. The government has made it mandatory to stamp the date and time of manufacture and the date and time of expiry on the packet. Therefore, once the bread is baked and packed, manufacturers make it a point that it reaches the market at the earliest for timely consumption. Thus, product distribution and point-of-sale availability are crucial factors for the success of the business.

Bread is a hygienically manufactured and a packed food product available at reasonable prices. Though major consumers of bread are those from the middle class, the premiumisation trend is visible in this product category too, as value-added, flavourful and artisanal breads are finding favour among the upwardly mobile, such as panini, sourdough, garlic, bruschetta, focaccia, pull-apart breads, etc. Premium breads are expected to grow faster than the overall market due to factors such as higher disposable income, propensity to spend, and willingness to experiment. Further, small bakeries have sprung up in many parts of the country that has fuelled the desire to experiment among home-bakers. This is also driving the consumption opportunity and demand for artisanal bread varieties.

Share of processed, dough-based products in the food component for the Indian food service chains segment in India was estimated at Rs. 11 billion in 2019-20 and is projected to grow at 23% CAGR to reach Rs. 30.6 billion in 2024-25. It includes the institutional business of fresh buns, frozen dough for pizzas and other bakery products. Dominos, McDonalds, Subway, Burger King and Pizza Hut together contribute ~70% of the dough-based products within the food service chain segment.

There are significant growth opportunities in the breads category, one of which is healthy and value-added products and the other is expanding into newer geographies. There has been significant consolidation within the category over the last couple of years as well. Per capita consumption of bread in India is only around 1.5-1.75 kg in various zones that also point to growth in bread consumption over time. Per capita bread consumption is 20 kg in Singapore, 46 kg in the US, 65 kg in Germany, and close to 100 kg in the UK, as per the All India Bread Manufacturers Association.

The broad market segmentation of bread is as follows:

• Mass bread segment comprising white breads made of wheat flour

• Premium breads, including wheat breads, milk and fruit breads, pizza bases, buns and value-added loaves in the indulgence category

• Super-premium breads consisting specialty artisanal products like pita bread, sourdough bread, etc.

With branding and organised distribution giving pricing power to manufacturers, the breads industry is dominated by branded companies with about 55% market share. The unbranded segment constitutes those in the cottage industry processing local products. In terms of zonal consumption, the North leads the industry with an estimated 32% share, followed by the West, South and East at about 27%, 23% and 18%, respectively.

Some of the major growth triggers of the bread industry are:

• Easy accessibility and convenience in eating, driving single and multi-pack consumption

• Shift in share from the unorganised to organised players on concerns of health and food safety

• Growing experimentative nature of consumers, fuelled by home-bakers trying out new ingredients and recipes

• Consumer internet businesses with hyperlocal delivery models that suit perfectly with the quick consumption nature of the product