Assignment 1

(Strategic Financial Management)

ON

Business plan for establishment of business

(Salty snack industry)

SUBMITTED BY-

RICHA JAIN

(MFC II)

Roll No. 2445

1

Contents

1. Introduction………………………………………………………………………………………………….2

2. Salty snack market in India……………………………………………………………………………5

3. Competitive analysis..……………………………………………………………………………………6

4. Macroeconomic indicators……………………………………………………………………………8

5. Profile of promoters………………………………………………………………………………………9

6. Location of the factory………………………………………………………………………………..10

7. Details of the factory………………………………………………………………………………….11

8. Financial analysis…………………………………………………………………………………………13

9. Product details……………………………………………………………………………………………20

10. Packaging…………………………………………………………………………………………………21

11. Distribution network…………………………………………………………………………………22

12. Future of snack industry……………………………………………………………………………22

13. Road ahead………………………………………………………………………………………………22

14. Key observations………………………………………………………………………………………23

15. Bibliography………………………………………………………………………………………………24

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Introduction

The food processing industry in India is a sunrise sector that has gained prominence in recent years. Availability of raw materials changing lifestyles and relaxation in policies has given a considerable push to the industry’s growth. This sector is among the few that serves as a vital link between the agriculture and industrial segments of the economy. Strengthening this link is of critical importance to improve the value of agricultural produce; ensure remunerative prices to farmers and at the same time create favourable demand for Indian agricultural products in the world market. A thrust to the food processing sector implies significant development of the agriculture sector and ensures value addition to it.

The Indian food processing industry holds tremendous potential to grow considering the still nascent levels of processing at present. Though India’s agricultural production base is reasonably strong wastage of agricultural produce is sizeable. Processing of fruits and vegetables is a low 2% around 35% in milk 21% in meat and 6% in poultry products. By international comparison these levels are significantly low - processing of agriculture produce is around 40% in China 30% in Thailand 70% in Brazil 78% in the Philippines and 80% in Malaysia. Value addition to agriculture produce in India is just 20% wastage is estimated to be valued at around US$ 13 bn (Rs 580 bn).

India with an arable land of 184 mn hectares is the highest producer of milk in the world at 90 mn tonnes p.a. second largest producer of fruits & vegetables (150 mn tonnes) third largest producer of foodgrains and fish and has the largest livestock population. Considering the wide-ranging and large raw material base that the country offers along with a consumer base of over one billion people the industry holds tremendous opportunities for large investments.

The industry is composed of six key segments:

Source: KPMG

3

India offers very favourable factor conditions to enable the food processing sector to flourish

• High availability of land – India ranks first in the world in irrigated land area and second in overall

arable land area

• Ample availability of marine and fresh water fish through the long coast line of over 7000 kilometres

several large rivers and lakes

• India ranks first in availability of cattle

• Ranks first in availability of milk pulses and tea and second in fruits vegetables rice and wheat

• Low cost of labour – production costs in India are estimated to be 40% lower than in developed

markets

These factors have not only helped the domestic market to grow but have also boosted exports. All the

key segments offer potential for investment and growth. The segments can be assessed for

attractiveness based on size growth penetration levels and level of organization.

Source: KPMG

4

SWOT Analysis of Food–Processing Industry

Strengths

Abundant availability of raw material Priority sector status for agro-processing given by the central Government Vast network of manufacturing facilities all over the country Vast domestic market

Weaknesses

Low availability of adequate infrastructural facilities Lack of adequate quality control & testing methods as per international standards Inefficient supply chain due to a large number of intermediaries High requirement of working capital. Inadequately developed linkages between R&D labs and industry. Seasonality of raw material

Opportunities

Large crop and material base offering a vast potential for agro processing activities Setting of SEZ/AEZ and food parks for providing added incentive to develop greenfield projects Rising income levels and changing consumption patterns Favourable demographic profile and changing lifestyles Integration of development in contemporary technologies such as electronics material science

bio-technology etc. offer vast scope for rapid improvement and progress Opening of global markets

Threats

Affordability and cultural preferences of fresh food High inventory carrying cost High taxation High packaging cost

5

Salty Snack market in India

The Indian snacks market is worth around US$ 3 billion with the organised segment taking half the

market share and has an annual growth rate of 15-20 per cent. The unorganised snacks market is worth

US$ 1.56 billion with a growth rate of 7-8 per cent per year. There are approximately 1000 types of

snacks and another 300 types of savouries being sold in the Indian market today. Potato chips and

potato-based items are the most popular products with more than 85 per cent share of the salty snack

market

Snack food may be broadly classified as:

1. Chips Wafers Crisps

These include deep fried potato chips strips sticks rings etc. and represent a substantial share of the

snack food market. Banana wafers jack fruit chips tapioca wafers which are popular in South India also

fall into this group.

2. Extruded Food

These are of two types:

• The traditional items made from flours and spices and extruded in the form of sticks strips or spirals

such as sev boondi papdi gathia chakli etc. These items traditionally prepared in households are now

marketed in pre-packed forms with different flavours and seasonings.

• The non-traditional pre-formed partly cooked pellets derived from potato starch from cereals and

fried at high temperatures for a short time to give expanded light textured products. This group also

includes cereal / potato powder mixes which are extrusion cooked and enrobed with oil and flavor.

Many of these products are highly flavoured with spices herbs or cheese. Typical examples are cheese

balls “cheetos” “kurkure” etc. A large number of products are available in this category and display

varying sizes shapes and textures.

3. High Value Items

These are roasted / fried / salted / flavoured nuts such as peanuts cashewnuts almonds etc.

6

Competitive Analysis

The key players in the salty snack industry in India are:

1. ATOP Food Products

Indian snack food manufacturer in Gujarat producing potato chips namkeen chatapata and

sweets with strong presence in the Western part of India.

2. AUEVSS Limited

AUEVSS Limited is a recently established Indian potato chip processing company by potato

growers and they use this fact to create tracebility. The company sells potato chips using the

brand name Fryo potato chips. AUEVSS is a subsidiary of Bhagatji Cold Storage.

3. Balaji Wafers Pvt Ltd

Balaji Wafers is one of the larger potato chips producing companies in India with a high market

share especially in Gujarat.

4. BB Foods

BB foods (Bankey Bihari Ji Food Products (P) Ltd.) is a company manufacturing pre-fried frozen french fries a range of frozen vegetables curries and snacks like crisps from India.

5. Bikanerwala Foods Pvt Ltd

Bikanervala Foods Pvt Ltd is the manufacturer and marketer of the Bikanervala and Bikano

branded Indian style sweets and savory snack products.

6. Britannia

Britannia is one of the leading one the biscuit brands in the country. They have ventured into

the salty snack segment with the view of diversifying their portfolio and reduce dependence on

one segment.

7. Frito Lays

Frito-Lay is the largest Potato Chips manufacturer in the world. Fritolay's brands include Lay's

Walkers Smith's Stax Ruffles and many more. Frito-Lay is a subsidiary of Pepsico.

8. Haldirams

Haldiram's is one of the larger chips and snack manufacturer's in India. Haldiram's is also

diversifying into fast food retail chains all over India.

9. ITC

ITC Limited is an Indian telecommunications giant and cigarette manufacturer diversifying in

Consumer Packaged Goods market including the snack foods sector. Brand names: Bingo. Bingo

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managed to capture an 11% market share of the Indian snack market within 6 months of its

launch.

10. Manpreet Foods Pvt Ltd

A company with a background in industrial gases Coal trading and business in Real Properties

diversified into the processing of snack foods i.e. Potato Chips & RTE Snacks (Extruded snacks).

Manpreet Foods markets their range of products under the "ME2" brand.

11. Nanaji Namkeens Udyog Pvt Ltd

Nanaji Namkeen established in the year 1975 is a traditional namkeensweets and potato wafers

producing company in India catering to the masses largely in DelhiRajasthan and even south

India.

12. Natraj Foods

Natraj Cold Storage and Food Pvt Ltd is a manufacturer of snacks including potato snacks in

India. Natraj Foods sells its snacks using brand name "Lip Chip".

13. Potatoking Foods Ltd

Potato King Foods is an Indian manufacturer of dehydrated potato products (potato flakes

potato flour potato powder potato granules) and potato chips. Potato King Foods is located in

West Bengal.

14. Parle Agro Pvt Ltd

Parle Agro a well known Indian brand had entered the salty snack segment with Musst chips and

the baked snack under the brand name of “Hippo”

15. Samrat

Samrat is an Indian Snack food manufacturer located in Gujarat. Samrat manufacturs a range of

25 snack food products.

16. SM Dyechem Ltd

SM Dyechem Limited has activities in three segments: Meal and Oil Snack Foods and Others. In

the snack segment they produce a range of ready-to-eat pelleted and extruded snack products

under brandnames such as Peppy Piknik and Senor Pepito. According to datamonitor they were

the #2 player in the Indian savory Snack market in 2005.

17. SM Foods Pvt Ltd

Indian manufacturer of a range of extruded snacks

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Macro Economics Indicators

The table below gives an overview of the macro economics indicators and salty snack market for the

various states in India:

Eco Size Eco Cnt Eco Gr% Literacy Pop PCI Salty Size Salty Con Salty Gr%

AP 183.12 0.08 0.10 60.47 76.20 11333 5743.66 0.04 24.44

Bihar 88.36 0.04 0.06 47.00 109.95 4635 4413.00 0.03 21.90

Delhi 83.09 0.04 0.10 81.67 13.85 29231 16467.06 0.11 14.85

Gujarat 152.52 0.07 0.14 69.14 50.67 16779 16352.02 0.11 20.12

Haryana 73.65 0.03 0.11 67.91 21.15 15721 7773.84 0.05 21.69

Karnataka 132.20 0.06 0.09 66.64 52.85 13141 5394.95 0.04 24.66

Kerala 89.45 0.04 0.09 90.86 31.84 12109 1781.68 0.01 36.34

Maharashtra 337.03 0.16 0.12 76.88 96.88 16479 15181.83 0.10 22.28

MP 125.05 0.06 0.09 63.74 81.15 8383 5707.75 0.04 18.50

NE 50.70 0.02 0.09 63.25 38.80 8751 5855.21 0.04 22.10

Orissa 52.24 0.02 0.12 63.08 36.80 6487 2021.03 0.01 22.48

Punjab 121.78 0.06 0.08 69.65 41.55 18000 15800.62 0.11 21.85

Rajasthan 98.57 0.05 0.09 60.41 56.50 8571 6660.07 0.05 16.80

Tamil Nadu 167.18 0.08 0.07 73.45 63.40 12976 5855.55 0.04 36.99

UP 222.96 0.10 0.08 56.27 174.70 5702 22572.02 0.16 23.59

West Bengal 189.49 0.09 0.10 68.64 80.20 11612 7738.66 0.05 15.94

All India 2604.00 1.00 0.08 64.84 1028.74 11799 150803.04 1.00 22.07

The company has decided to cater to market in the Delhi NCR region. The factors considered by the

company to choose this region are as follows:

The Delhi NCR region has the highest per capita income of Rs. 29231. As the region is home to

mostly mid and high income groups the demand for salty snacks is expected to be strong.

Also the city has one of the highest population density in the country which represents an

opportunity for the company.

The size of the salty snack market is second largest in the country which represents strong

demand from the consumers in the area.

There are not many local salty snack manufacturers in the region compared to Western states

like Maharashtra and Gujarat.

The salty snack market in the region is expected to grow at the rate of around 15%

The high literacy rate in the city indicates that the level of awareness among the residents is

high and is therefore a good market for the new healthy baked snacks offered by the company.

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Profile of the promoters

Ms. Advika Jain

Ms Advika Jain is a chartered accountant by profession and also an IIM A alumni. Before starting this

company, she was holding a position of Vice President, Asia Pacific of Standard Chartered Bank. She has

a wealth of experience in the area of finance which includes an assignment of around 2 years with IMF.

Mr. Ankur Mahindra

Mr. Mahindra holds Bachelor’s degree in Arts and Master’s degree in Philosophy, Politics and Economics

from the University of Oxford. He is a fellow member of Institute of Chartered Accountants of India and

Institute of Chartered Accountants in England and Wales and also an associate member of Institute of

Taxation in England. Prior to joining this company, Mr. Mahindra worked as the Managing Partner of

M/s A. F. Ferguson & Co., a leading Audit Firm and as the Co-Chairman of Deloitte, Haskins and Sells in

March, 2008.

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His area of Specialisation includes audit, business consultancy, business valuation, corporate

management, financial management, pre-acquisition studies, corporate law etc. He was involved in

audit and taxation of wide selection of Indian and multi-national clients.

Mr. Vishal Poddar

Mr Poddar holds a Bachelor’s Degree in Pharmacy and Master’s Degree in Food Biochemistry and

developed his earlier career in the Technical and R&D functions. He has a distinguished international

record, highlights being postings in USA, France and Philippines. His last posting was as head of the Food

Strategic Business Unit(SBU) for Asia Pacific Region.

Location of the factory

The location of the factory has to be decided considering both the location of raw material as well as the

target market. Other factors to be considered include infrastructure facilities tax incentives if any

availability of cheap and skilled labour etc.

Keeping the above factors in mind the company has decided to set up manufacturing plant in Faridabad

Industrial Area.

Raw Material:

The raw material required is potatoes for the chips and besan and lentils for the protruded snack. The

company aims to source these raw material from the Agra market which is the wholesale market closest

to the factory.

After the construction of the Delhi Agra highway the transportation of the raw material to the factory is

now very convenient.

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Customers:

The company intends to sell mainly in the Delhi NCR region. Keeping the factory in close vincinity of the

customers would help to reduce the cost of logistics for the company and would positively affect the

bottom line of the company.

Infrastructure:

Faridabad offers an excellent infrastructure base for setting up the manufacturing facility. The following projects which are underway/in the pipeline are pointers to the potential of infrastructural development in the District:

Badarpur Flyover Six lanning of NH-2 Extension of Metro Rail upto Faridabad Western Express Highway linking Kundli to Palwal via Manesar Kalindi Kunj bypass providing easy access to NOIDA (U.P.) Eastern Express Highway from Kundli to Palwal via NOIDA.

Haryana State Industrial Development Corporation Haryana Urban Development Authority and the Directorate of Industries have developed industrial estates having more than 1500 plots spread all over the district. Haryana is rated today as the best State in India by the Centre while monitoring Indian Economy on the basis of survey conducted by it so far as infrastructure facilities are concerned.

Details of the factory

The issue to be addressed here is to decide on the type of plant that results in minimum operational

costs without any compromise on the quality of the products. As the products will compete with well

known international brands in the market special emphasis needs to be given to quality aspect when

choosing the type of plant.

The two main decisions to be taken here are:

Whether to buy or lease the machinery

Whether the machine should be capital intensive or labour intensive

The company has decided to buy a fully automatic plant from a leading international manufacturer FMC

Technologies.

With the Potato Processing Machine (PPM) Chips Line a cost effective and complete integrated processing system the operations are kept on an efficient assembly line process. After destoning and washing the potatoes enter the Continuous Abrasive Peeler for peeling and brushing.

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The raw materials then move to the cutting/slicing unit where the Slice Washer does its job effectively. From here the potatoes move into the Multi-Turbulence Blancher a closed chamber that carefully blanches each potato slice with its cross circulation water bath. The main objective of the operation is to leach out sugar since the amount of sugar affects the final colour of the chips. Next to this unit is a High-Speed Fryer Infeed that separates the sliced potatoes into individual slices before they enter the fryer. Finally the sliced pieces enter the PPM Frying System. This multi-flow system fryer adds and removes the frying oil at several points in the unit. This is done to ensure a uniform temperature and gentler flowrate (to prevent further breakage). The Defatting Unit lowers the fat content of the chips from by means of high-pressure steam. After salting and flavouring the chips finally proceed to the packaging line. The entire PPM Chips Line is made of stainless steel and as such is unbeatable in terms of maintenance characterised by easy cleaning and operating efficiency.

Apart from this conventional potato chips machinery the company has also setup infrastructure for

manufacturing of baked snacks for the health conscious segment of the market. This machinery will be

semi automatic and will be bought by the promoters of the company.

Structure of the company

The company will start as a private limited company. As the company expands and the operations of the

company grow it can convert itself into a public limited company and could also consider going for a

public issue.

Financing

As the company requires a high initial investment for setting up of the business the company intends to

go for a mix of promoters capital and debt for the financing of the project.

Even though the company is likely to face competition from the existing players in the market but as the

salty snack market is growing fast the company is expecting a loan from the bank under the SME

category.

The risk associated with the business is also relatively low as this is an impulse product with low brand

loyalty and small wallet share of the consumers.

The owners of the company have decided to finance the establishment of the manufacturing facility and

the related costs themselves. However they will approach a bank for their working capital financing.

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Financial analysis of the company

The projected financial statement of the company is as follows:

Projected Income Statement

Particulars Schedule For the year ended For the year ended

No. 31 March 2012 31 March 2013

INCOME

Sale volume

441,365,647

582,679,612

Revenue 441,365,647 582,679,612

EXPENDITURE

Cost of goods sold

282661736

393644984

Personnel costs 7

1,922,493 2,212,801

Depreciation

45071119 47485198

Interest and finance charges 8

2,694,144 5,140,650

Administrative and other expenses 9

92,196,644

97,576,005

424,546,137 546,059,638

Profit before prior period items and tax 16,819,510 36,619,974

Prior period income

Profit before tax 16,819,510 36,619,974

Tax expense @ 30%

5,045,853

10,985,992

Net profit after tax

11,773,657

25,633,982

Profit carried to the Balance sheet 11,773,657 25,633,982

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Projected Balance Sheet

Particulars Schedule As at As at

No.

31 March

2012

31 March

2013

SOURCES OF FUNDS

Share capital 1

293,226,343

279,366,018

Reserves and surplus 2

11,773,657

37,407,639

Unsecured loan 3

154,000,000

154,000,000

459,000,000 470,773,657

APPLICATION OF FUNDS

Fixed assets 4

Gross block

300,474,129

316,567,987

Less: Accumulated depreciation

45,071,119

47,485,198

Net block 255,403,010 269,082,789

Current assets, loans and advances 5

Inventories

65,821,546

83,725,732

Sundry debtors

34,837,667

40,986,985

Cash and bank balances

125,599,640

105,599,640

Loans and advances

3,253,765

3,253,765

229,512,618

233,566,122

Current liabilities and provisions 6

Current liabilities

22,029,519

27,411,535

Provisions

3,886,109

4,463,719

15

25,915,628

31,875,254

Net current assets 203,596,990 201,690,868

459,000,000 470,773,657

Schedule 1: Share Capital

Particulars 2,012 2013

Advika's capital

73,306,586

69,841,505

Ankur's capital

117,290,537

129,746,407

Vishal's capital

102,629,220

97,778,106

Total share capital 293,226,343 297,366,018

Schedule 2: Reserves and Surplus

Profit and Loss Account 2,012 2013

Opening balance -

11,773,657

Add: Profit for the year

11,773,657

25,633,982

11,773,657 37,407,639

Schedule 3: Secured Loan

Particulars 2,012 2013

Working capital loan 154,000,000

154,000,000

154000000 154000000

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Schedule 4: Fixed Asset

Particulars Gross Block

As at

Additions* As at

1 April 2012

31 March

2013

Plant and

machinery

183,476,000

7,075,401

190,551,401

Land and

Building

41,569,539.00 -

41,569,539.00

Furniture &

Fixture

35,612,987

2,718,340

38,331,327

Computers

21,759,003

4,375,110

26,134,113

Vehicles

18,056,600

1,925,007

19,981,607

Total 300,474,129

16,093,858 316,567,987

Depreciation Net Block

As at For the As at As at As at

1 April

2012 year

31 March

2013 31 March 2013

31 March

2012

27,521,400

1,061,310

28,582,710

155,954,600

161,968,691

6,235,431

6,235,431

35,334,108

35,334,108

- - - - -

5,341,948

407,751

5,749,699

30,271,039

32,581,628

3,263,850

656,267

3,920,117

18,495,153

22,213,996

17

2,708,490

288,751

2,997,241

15,348,110

16,984,366

- - - - -

45,071,119 2,414,079 47,485,198 255,403,010 269,082,789

Schedule 5: Current Assets, Loans and Advances

Particulars As at As at

31 March 2013 31 March 2012

Inventories

Traded goods

38,976,100

47,124,290

Goods in transit

19,488,000

24,512,900

Contracts in progress

7,357,446

12,088,542

Less: Provision for obsolete stock - -

65,821,546 83,725,732

Sundry debtors

(Unsecured and considered good unless otherwise stated)

Debts outstanding for a period exceeding six months

9,054,780

12,487,200

Other debts

25,782,887

28,499,785

34,837,667 40,986,985

Cash and bank balances

Cash in hand

250,620

184,620

Balance with scheduled banks

- on current accounts

86,952,000

75,416,970

- on term deposits

38,397,020

29,998,050

125,599,640 105,599,640

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Loans and advances

(Unsecured and considered good unless otherwise stated)

Advances recoverable in cash or in kind or for value to be

received *

1,647,900

1,647,900

Special additional duty/ cenvat recoverable

1,045,823

1,045,823

Interest accrued and due

560,042

560,042

3,253,765 3,253,765

* includes travel advance given to director Rs. 278,945 (Previous year Rs. Nil), maximum amount due

during the year Rs. 278,945 (Previous year Rs. 122,088)

Schedule 6: Current Liabilities and Provisions

Particulars

As at As at

31 March

2013

31 March

2012

Current liabilities

Sundry creditors

17,246,040

19,874,352

Interest accrued but not due

932,180

1,063,780

Other liabilities**

3,851,299

6,473,403

22,029,519

27,411,535

**includes Provident Fund payable Rs. 1,236,553 (Previous year Rs.

1,576,471)

Provisions

Provision for gratuity

1,520,436

367,682

Provision for leave encashment

587,999

459,050

Provision for warranty

838,720

984,815

19

Provision for unscheduled spares

938,954

2,652,172

3,886,109

4,463,719

Schedule 7: Personnel Cost

Particulars For the year ended

For the year

ended

31 March 2012 31 March 2013

Salaries, wages and bonus

1,780,142

2,089,961

Contribution to provident and other funds

64,702

61,561

Staff welfare

22,407

23,851

Contribution to employee gratuity fund

45,390

35,870

Employee compensation cost 9,852 1,558

1,922,493 2,212,801

Schedule 9: Interest and Finance Charges

Particulars For the year ended

For the year

ended

31 March 2012 31 March 2013

Interest on loan

2,030,000

4,060,000

Bank charges

664,144

1,080,650

2,694,144 5,140,650

Schedule 10: Administrative and other expenses

Particulars For the year ended

For the year

ended

20

31 March 2012 31 March 2013

Travel and conveyance

8,975,246

9,341,230

Lease charges

4,778,358

5,105,869

Insurance

3,435,132

3,823,886

Repairs and maintenance - others

4,353,836

4,343,710

Legal and professional

2,174,832

3,766,679

Printing and stationery

3,055,789

3,490,753

Postage and courier

709,869

836,270

Telecommunications

7,863,260

1,948,646

Rent

37,298,559

40,200,762

Power and fuel

1,766,273

1,845,125

Business development

3,561,857

3,537,722

Warranty costs

6,567,892

7,867,486

Bad debts written off

921,679

5,049,072

Rates and taxes 136,548

288,541

Miscellaneous expenses

6,597,514 6,130,254

92,196,644 97,576,005

Product Details

The company has decided to launch 4 different types of snacks namely potato chips, baked crackers,

khakhra and namkeen under the brand name “Krissps”. The guiding factors while deciding the product

are as follows:

An easily available ready to eat snack

Value for money for the customer

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It should not contain high calories and should preferably be non fried

Something to munch on when hungry but should not be heavy on the stomach or lead to loss of

appetite

Tasty and crunchy

Easy to store

Branded

The flavors have been given easy to remember and catchy names. The products are available in the

following flavors: Plain salted, Funky tpmato and Paneer Tikka masala (For potato chips), Normal and

Diet khakhra, Chilli cheese and Punjabi masala (Baked crackers)

Packaging

Each of the flavors will be available in the packaging of four different sizes: 100 gm, 200 gm, 500 gm and

700 gm. The package will be designed with vibrant colors. The pricing will be: Rs. 30 for 700 gm; Rs 25

for 500 gm; Rs 15 for 200 gm and Rs. 5 for 100 gm.

The 100 gm pack is mainly for first time buyers, travelers and children.

The 200 and 500 gm packs are for munching for individuals when they feel hungry in between meals.

The 700 gm pack is for party with friends and family or sharing with others.

Distribution Network

The company believes that distribution network is one of the key success factors in the industry. Salty

snacks are mainly an impulse products and it is believed that the customer will buy the product only if

they see the products. So the company aims to create long term relationship with their supply chain

through offering better margins, and other facilities.

KRISSPS will be available at all confectionery shops, local kirana shops, shopping malls, tea stalls, phone

booths, juice centres to increase the visibility factor of the new brand.

It will not be stacked inside the store but will be stapled at counter in a row and hung outside shops tp

grab the eyeballs. It will also be placed at counter shops as most of the buying decisions are made inside

the store.

The company has decided to enter into exclusive agreements with cinemas and other student hangout

places for selling of the chips. The company will offer attractive margins to these parties to gain the

contract. This is likely to boost the sales of the company to a great extent.

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Future of snack industry

The greatest scope for innovation in the "immediate future" is with respect to the quasi-meal and

snacks.

With lifestyles having undergone a radical change the consumer is in need of (and is willing to spend on)

new processed alternatives in both these areas - options that offer convenience variety health as well as

indulgence.

Growth is being driven by healthy low-fat low-calorie snacks while snack foods positioned as trans-fat

free are also likely to soar in popularity

However the snack foods sector may come under pressure facing competition from convenience foods.

A growing percentage of the global population in both developed and developing countries is replacing

light meals with snacks. Convenience foods manufacturers could therefore market some of their

products as snacks to try and gain more market share.

A report by AC Nielsen India (Retail) estimates that this category of food has a fair chance of growing by

about 25% in the next two years due to various reasons like Multiplex culture snacking at home while

watching TV pubs and bars (where they are served free). AC Nielsen's retail audit shows that the large

sales volumes are due to a marked preference for ethnic foods regional bias towards indigenous snacks

and good value-for-money perception..

Road Ahead

After establishing a brand in salty snack segment and gaining a reasonable market share, the next step

for the company would be an entry into the RTE segment.

An RTE is defined as food that is pre-prepared cooked and preserved in a form which can be consumed

very quickly with minimal effort. At best it will have to be heated not beyond 5-7 minutes. Hence it is a

food in form and shape that is easily consumable but at the same time it is not a snack like a packet of

chips. RTE further comes in four different types: frozen chilled preserved/canned and dried. However

globally RTE is available in two types: frozen and chilled.

The ready-to-eat (RTE) market in India is expected to grow to Rs 2900 core in size by 2015 from a mere

Rs 128 crore in 2006.………………………………………………………………………………………………

By then the size of the RTE exports market is expected to touch $16 million said a recent study by Tata

Strategic Management Group (TSMG). Raju Bhinge CEO Tata Strategic Management Group said there

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was a huge untapped market opportunity arising due to rapid demographic shifts in income

urbanisation and proportion of urban working women in

India.………………………………………………………………….

While the current consumption base estimated by the Tata Strategic report is less than 3% of the total

base -- just about 5.4 million households residing in the top 24 in SEC A and SEC B cities -- the target

market by 2015 is expected to be over 25 million households a 400-plus % growth in 7-8 years.

Pankaj Gupta practice head consumer and retail Tata Strategic said: "What we will see in the coming

years is a two-fold growth in the category of consumption.”……………………………………………………

The study also indicated that the RTE meal itself needed clarity as a concept considering there were

other related categories available in the market that are misunderstood to be a ready-to-eat product.

The entire packaged foods space can be split into 3-4 different buckets. One that is related to ready-to-

eat then there is ready-to-cook (could be a cake mix a pasta mix where the ingredients are provided and

you will only have to heat boil microwave) and then there are other packaged foods like dairy products

snacking bakery/biscuits products

etc.//////////////////////////////////////////////////////////////////////////////////////////////////////////

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The drivers of this enormous growth in the ready-to-eat meals segment are:

Acceptability

Affordability

Availability.

"This apart the cost implications are fairly higher compared with cooking the same meal at home" said

Gupta. But things are changing. Some of the other factors contributing to RTE meal growth will be

disposable incomes diminishing culinary skills and the rising need for convenience on the demand side.

Key Observations

The nature of the food processing industry and the experiences of successful Indian and MNC players

indicate the following key success factors for growth in this sector:

Effective distribution network and supply chain. Product range that is customised to suit local market requirements. Superior processing technology. Brand building and marketing.

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Bibliography

o Munch Magic article in Business Standard o Chip off the old block case study done by Asia Pacific Food Industry o The amazing story of ITC rise on rediff news o Eating habits: following the Indian consumer mind Economic Times o Haldiram: an icon in the food processing industry FnBnews.com o India to have a big slice of global snack market report by TNN dated 8 march 2008 o Bitter fight in snack market Fnbnews.com o Big growth for RTE FnBnews.com o Snack market is worth 100 bn article by FnBnews.com o Snacks to boost demand in packaged food sector: Study article by The Hindu Business Lin o Report on Food Processing By KPMG and IBEF o Foreign firms seek a bite in India’s $90bln food market by Reuters o ITC Pepsico battle it out in wafer o Lessons in repositioning Britannia case study by Business Today o Food and Beverages survey by FICCI o A smart cookie article by Hindu business Line o After Minto its Candyman from ITC Article by Hindu Business Line o Key ratios of Cadbury Nestle Britannia by Rediff business o www.smfoods.com o www.itc.com o www.balajiwafers.com