Indian Snack Market overview
Any time is a good time to snack as long as it is convenient, tastes sinful and doesn’t burn a hole in the pocket. For many consumers, regimented breakfast-lunch-dinner lifestyles have ceased to exist. They are simply grabbing a bite on the run and in cars, while waiting for the bus in long-winding queues. Or while watching the seemingly endless saas-bahu sagas on television, plonked on their drawing-room sofas. Little wonder the snack food market is growing faster than ever before. In 2007 it stood at Rs 5,000-Rs 5,500 crore. Of course the branded segment is much smaller at Rs 2,200 crore, which is what makes it so attractive to food companies that are looking at bigger shares.
According to a study by McKinsey&Co, the Indian food market will grow two fold by 2025 with the rapidly growing Indian economy and improving lifestyles of Indians contributing in a big way to this growth. Quoting the study by McKinsey&Co, a report by the US Department of Agriculture stated "The market size for the food consumption category in India is expected to grow from US$ 155 billion in 2005 to US$ 344 billion (approx. 13,76,000crores)in 2025 at a compound annual growth rate of 4.1 per cent."
There are approximately 1,000 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.
There is a big market for snacks in India as urban Indian consumers eat ready-made snacks 10 times more than their rural counterparts. Indians in the western regions eat the maximum amount of snacks, followed by the people in northern region.
In the branded snacks market, to get down to basics, FritoLay commands a share of 45%, followed by Haldiram’s at 27% and ITC at 16%. The rest is divided between a handful of new entrants and many regional players.
With the high stress on health and nutrition, more and more brands see sense in aligning themselves with low calorie content and healthier proposition. This is a reflection of the same sentiment that is pushing people to jog, gym and so on. And that’s the trend worldwide. In other words, there is an extremely profitable niche available for companies wishing to compete in a market that seeks both price and nutritional values. So many of the new releases are designed to meet the desire for low-fat, less sodium, fewer calories and thus, better nutrition.
Since snacking is largely a hunger-driven impulse decision rather than a planned eating occasion, staying top of mind is high on the agenda of most big players in the segment.
In this high impulse buy category you need to offer the right product that leaves a lasting impression on the consumer and have a strong distribution network to ensure it is available at an arm’s length of the consumer.
The focus points for a market leader in this industry are as follows:
- Top of the mind recall
- Strategic Merchandising (Placement of Product)
- Width of Distribution
- Frequency of Dealer Coverage
Bingo: The Launch
As put by Mr. Harish Bijoor, CEO of Brand Consultants Harish Bijoor Co, ITC has adopted a strategy of “shock and awe” to intimidate its rivals. “Shock the market with your bluster. Shock the market with your range. Shock it with wide distribution. Shock it with status that speaks not of a new launch but of an aggressive player with deep pockets, who can outdo the best player in the market. The market is shocked first, so is the market leader and the consumer is put into a state of awe. Every piece of advertising and market promotion makes ITC product look larger than life. And it helps” says Bijoor.
Backed by strong distribution, advertising that struck a chord with the target group, the advantage of bargaining strength with “tie-in” strategy with the retailers, greater trade margins and innovative product flavors customized to the regional palate, Bingo was widely acclaimed as a successful launch.
Marketing Strategies
SEGMENTATION, TARGETING AND POSITIONING
CUSTOMERS
The Indian snack market is an impulse driven market. ITC decided that youngsters in the age group of 16-30 are the most experimental and hence they would be the primary target audience.
COMPETITION
The organized snacks category is sub-divided into the traditional segment (Bhujia, chanachur etc.), Western segment (potato chips, cheese balls etc.) and the newly established Finger snacks segment, which is an adaptation of traditional offerings to the western format.
The Rs 2,000-crore branded snack market (the un-branded market is more than twice as large) was dominated by Frito Lay with brands like Lays, Kurkure and Uncle Chips, the latter being acquired from Amrit Agro about six years back. It was the market leader with a share of close to 50 per cent, whereas Haldiram came next with a 20-25 per cent share of the pie.
Since the market has a low entry barrier new competitors keep cropping into the space.
STRATEGIES
MARKETING OBJECTIVES
- Target was placement of all merchandising units across the market in a month’s time
- Create Identity in a Short Span
- Offering a wide range
- Reaching every nook & corner
- Distinct Approach of introducing innovative and differentiated products in a largely undifferentiated market place.
ITC had done its homework well. It spent close to two years for developing Bingo. The entry was prompted by the fact that there are few players in this segment. There was only one organised large player (Frito Lay) at the national level in the packed snacks segment apart from some regional players.
After making the decision to launch Bingo it started by sending a cross-functional team of eight individuals across the country to research the snacking habits of the Indian consumer. After travelling to 14 cities and speaking to more than 1,000 people, the team came back with an insight that Indian consumers were looking for novelty and excitement in existing snacks.
ITC’s strategy was to cater to Indian taste buds with very Indian flavours, to have a large scale advertising campaign and to use their strong dealer networks to ensure that Bingo is within arm’s reach of its customers.
They also used health positioning by emphasizing that Bingo was not fried but baked.
PRODUCT
While developing Bingo, the product development team fanned out across India, zeroed in on more than 200 snacks that are popular in various regions, including murukku, samosas, khakra and potato chips, and listed the dominant flavours.
With flavours such as Masala Chaas, Chatpata Nimbu and Paneer Tikka, it has variants with truly Indian flavours. Though Frito Lay has had flavours like the recently launched Mint Magic and others like Latino, Spanish Tomato Tango, Cilantro, ITC has chosen to go the Indian way with success.
They then took this list to ITC’s hotel chefs who created 30-40 dips with these dominant and, sometimes, combination, flavours. They finally selected 16 taste platforms and tried them out on neutral bases. The company then blind tested these snacks across India. Any flavour with less than 75 per cent approval rating was rejected. Finally, it launched 16 variants, and will launch 10 more shortly.
PRICE STRATEGIES
Bingo was available in packs priced at Rs. 5/- and Rs. 10/- which was at par with its competitors. They offered smaller shops and retail outlets a margin that was 4-5 per cent higher than competitor Frito Lay's.
PLACE
ITC’s biggest strength is its strong distribution network. They distributed more than 4 lakh large racks, to display the brand at all points of sale. The racks created so much impact that even competitors like market leader Frito-Lay's introduced its own version of wafer racks. Small retailers, almost all of whom also sell ITC cigarettes, claimed they had been promised a premium if Bingo display was better. This incredible leveraging of distribution system is credited by many as major cause of Bingo's success.
PROMOTION
According to industry estimates, ITC spent close to Rs 100 crore on marketing and brand promotion.
Bingo’s Launch was strategically timed around the World Cup to leverage the tremendous popularity that such leisure and cocktail snacks will find among cricket lovers in the country. So cricket lovers can enjoy their favourite matches while savouring an all-new range of innovative Bingo snacks during this World Cup.
In places like Bangalore, promotional events like games and competitions based on Bingo have become regular features at large malls like Garuda and Forum on weekends. The brand also tied-up with the Aerosmith rock concert that recently happened in the city.
Advertising in the category was extremely crowded. Every week, two-three new brands (many of them, local) are launched and more often than not, they are targeted at the youth.
To break through the clutter, the company decided to bank on humour. Their advertising agency Ogilvy & Mather focused the ads on registering of the brand name and attracting the youth.
O&M came up with five ads based on disconnected humour. A boring description on flamingos gets twisted when the voice over explains that while flamingos have a long beak to help them find food, they do not have the mouth-watering combination of tandoori paneer tikka and potato chips that Bingo has to offer.
The entire campaign was a series of similar spoofs. The advertisements worked in the company's favour, believe brand analysts. “Bingo touched a chord with consumers through humour and irreverent advertising. ITC dominated media of every kind, but with good creatives and a good product, hence they have been successful,”says brand consultant Harish Bijoor.
ITC also ensured that it reached its audience through every possible medium. It first created a website www.bingeonbingo.com with offers, online games, downloads and even mobile games. The site was advertised with banners on websites such as Yahoo!, Rediff and Sify.
On television, the company booked 10 to 15 spots per channel per day on youth channels such as MTV and Star World, mass Hindi channels like Zee and Star TV, and news channels.
It also had around 20 spots on a variety of radio channels and advertised in most leading national dailies. In the top-30 cities, over 1,000 outdoor hoardings advertised the product.
Like Frito-Lay, ITC, too, has designed a merchandise rack for its products. The company plans to distribute this to 500-600 thousand retail shops to ensure visibility at the point of sale.
Porter’s Five Forces
Threat of new entrants - High:
- Entry and Exit barrier being low therefore a lot of players in the market, so players have wafer thin market shares
- A vast unorganized market, therefore lots of small regional players
- Abundance of raw material and no special technology required
Bargaining Power of Buyers – High:
- There are a large number of buyers relative to the number of firms in this industry. Therefore, companies like Bingo must continuously market their product and differentiate their brands against competitors, in order to increase sales and market share.
- Switching cost is low for the consumer, and may occur frequently depending on consumer preference and other factors affecting consumer buying decision.
- Since it an impulse driven market customer loyalty is low.
Bargaining Power of Suppliers – Low:
- There are many suppliers in this industry. In essence, there is very little differentiation among the suppliers which makes suppliers' bargaining power non-existent.
- Conglomerates such as ITC have a definite advantage and power over their suppliers. These suppliers become dependent on these firms as their means to survival.
Threats of Substitutes – High:
- With so many alternatives available in the market and the customer loyalty being low for an impulse driven market the buyers' propensity to substitute is high.
- Consumers are likely to substitute due to price, flavour fatigue and want to try something new.
Rivalry among Existing Competitors – High:
- The rivalry among existing competitors in the snack is very high. Large firms such as ITC and Pepsico are constantly looking at opportunities to expanded their reach and get a larger chunk of market share.
- Competition is fierce in the snack industry and those who dominate or lead the market do so with high capital expenditures, aggressive sales and marketing strategies, and strong brand identity.
SWOT Analysis
STRENGTHS
- Strong financial position with minimal long term debts and a steady inflow from the cigarette industry
- Strong ITC Brand recognition and reputation
- Width of Distribution already existed
- Raw material sourcing from farmers done easily, as its earlier foray into categories like atta and biscuits had already given it access to the supply chain.
- Low overheads and deep pockets enabling competitive pricing and larger dealer margins
- Presence in the hospitality sector and packaging sector made it self sufficient Vertical Integration
- Prior experience in the FMCG Industry. The launch of Bingo was ITC Foods' fifth major line of foods business after the highly successful Staples, Biscuits, Ready-to-Eat and Confectionery businesses.
- Learnt well from mistakes of the previous FMCG launches
WEAKNESSES
- ITC was perceived as Cigarette manufacturing company so it was tough to break the perception
- Being market leaders in the tobacco industry offering wafer thin margins and zero credit, the workforce was not a tuned to playing second fiddle
THREATS
- Entry Barriers are low for this sector and with a large unorganized sector constantly organizing itself, it will be under constant threat of new brands.
- Since it is an impulse purchase product, brand switching and flavour fatigue is high. Need for constant innovation and high decibel advertising.
OPPORTUNITIES
- Huge market with high growth prospects
- Has a lot of untapped markets some smaller cities and parts of rural India
- Can expand in the international market where they already have a foothold
- Boundless opportunity in terms of product range foray
Creating Value
Bingo (ITC) Marketing Management I Page
