The State of Affairs of the Indian Potato Chips Market
The demand for chips in India is growing rapidly, with several major players building a nationwide presence to cater to consumer needs. Rising demand, reports Raghavendra Verma.
Indian consumers still love chips.
According to data analytics firm GlobalData, the Indian potato chips/crisps market was worth USD 2.59 billion in 2017. The market grew at a compound annual rate of 18.7% and is expected to grow further to reach USD 5.5 billion by 2022.
Sales of branded potato chips sold by manufacturers across India are dominated by a handful of large companies – accounting for $900 million of the segment’s total revenue, according to figures from Indian ethnic food producer and retailer Haldiram Snacks. The rest is made up of little-known local brands and potato chip products sold in clear plastic bags, Gaurav Mahajan, Haldiram’s head of marketing, told just-food.
Ten years after the launch of Haldiram’s ‘Chips’ brand, the company has a 14% market share for nationally branded potato chips, competing with Balaji Wafers (15%) and ITC (16%). However, all three brands are far behind PepsiCo, which accounts for 40% of sales, Mahajan said, citing independent third-party market research conducted by Haldiram to determine sales.
There are many smaller brands of potato chips, Mahajan says, but these five companies dominate sales of brands sold nationally. He did not disclose the source of the data.
The growth of the Indian potato chip market is due to rising family incomes. Unlike chocolate or confectionery, where children are the primary consumers, the growth of potato chip sales in India is consistent across all age groups, says Ankur Bisen, senior vice president at Gurgaon-based consultancy Technopak. “There are multiple occasions to eat them during the day, whether it’s with drinks with friends, while travelling or as a side dish with regular food.”
Innovation in taste has led to changing taste preferences. PepsiCo emphasizes the need to experiment in snacking categories. “We have evolved our brands over the years to cater to the changing taste preferences of our consumers and have introduced different variants across our product portfolio,” a spokesperson for PepsiCo’s India business said.
PepsiCo has conducted research into the potato chip assortment in India, looking at more affordable products and efforts to make their snacks healthier.
In 2016, PepsiCo introduced Lay’s Crispz and Lay’s Twistz potato chips – Crispz are thinner and crispier than Pepsi’s standard lines and Twistz are sold in twirl shapes – both priced at INR5 (US$0.07). Last year, meanwhile, PepsiCo announced that it had reduced the sodium content in its Indian Magic Masala and Spanish Tomato Tango flavors by 13-15%.
Despite innovations in taste by some manufacturers, there is still a latent conservatism among consumers, says Shumitha Periyasamy, founder and CEO of Food Buddies, a consultancy firm in Chennai.
Periyasamy says salt, pepper and chilli are “the most favoured flavours for Indians” and are the most popular elements of chip flavours. In fact, 60% of Haldiram’s potato chip sales are salty products, even though the company sells chips in six different flavours: salty, masala, pudina, spicy tomato, cream and onion and sweet Thai chilli. The company will introduce two more variants in the next two months, says Mahajan, though he does not disclose the flavours.
Others argue that Indian potato chip makers have been slower to innovate in areas such as texture. “The last launch that had some kind of technological or functional innovation was Lay’s Maxx (in 2015),” says Srirama Chaitanya Manyam, manager of the food processing and retail practice at Sathguru Management Consultants in Hyderabad. “They have increased the serration on the chip to such an extent that it gives maximum crunch.”
One could argue that with the category seeing solid growth, manufacturers may not yet feel the need to invest more in such innovation projects, as these projects will take longer than the introduction of new flavors.
Despite the apparent simplicity of the potato chip, smaller players are likely to struggle to compete on quality with the big manufacturers as they expand their presence across the country. One reason is quality control. Big companies, including Haldiram, are doing contract farming to ensure uninterrupted supply of special potato varieties suited to their products, says Mahajan.
According to Girish Gupta, CEO of Foodees Group of Consultants in New Delhi, the cost of setting up a potato chip manufacturing facility is also a major barrier to entry for smaller companies.
“The machinery for a 500 kg hourly capacity manufacturing plant costs around $700,000 and, along with land and buildings, the total cost goes up to $1.5 million,” says Gupta. “The cost of weighing and packaging machinery is $285,000 and an imported cutting machine costs $40,000.” Haldiram’s Mahajan claims the cost of a fully automated plant was much higher, but did not specify a figure.
Nitrogen-filled packaging systems that keep chips dry and prevent damage to the product are also important and expensive, Gupta says. However, there are limited-capacity packaging machines available for as little as $500 that are used by little-known brands to serve smaller markets with lower-quality products, he says.
Manufacturers also have to take into account India’s varied geography. For higher altitudes, companies have to modify packaging by adding less air — a practice Haldiram follows — to prevent packages from exploding due to low air pressure, Mahajan says. For cities like Leh, in the Himalayas, 3,500 meters above sea level, “we send packages with no air at all,” he explains. “To prevent breakage, chips have to be handled as carefully as a crate of eggs.”
Manyam of Sathguru Management Consultants says that large companies aim for profit margins of 25% to 30% when they launch a potato chip product.
The cost of making a 30g packet of chips is INR10, just 25% to 30% of the retail price. Packaging costs 7.5% to 10%, while logistics costs 15% and the rest is the margin of the retailer and distributor. With efficiency in the supply chain, the big companies can increase their profit margins to 35%, says Manyam.
On the other hand, a small company that launches a product in local markets where it has not previously operated offers the retailer a margin of up to 35%, says Manyam.
These calculations and negotiations play a major role in the success of any product, argues Foodees’ Gupta, as India is a highly price-sensitive market. Pringles’ packaging alone—a pack costs $1.50—costs $0.15, he adds, which could limit sales of Kellogg’s brand in the country.
Sumit Mathur, marketing director for Kellogg’s South Asia operations, says Pringles sales through just-food have doubled in the past two years and highlights how the company has “strengthened the brand… through various marketing initiatives.”
Mathur says Pringles is targeting consumers who look beyond price and are looking for “differentiated value propositions that are worth paying more for”, with demand “focused on social occasions (and) personal experiences”. With Indians keen on “pure-play snacking”, Mathur sees “growth only for a quality brand like Pringles”.
Overall, chips have a big advantage over other snacks in the Indian market, says Gupta, because they have become the category driver at the retail level. “If a store doesn’t offer chips, sales suffer,” he claims. “With chips on the shelves, sales of other snack products just double.”
What could fuel India’s demand for chips next? – just-food deep-dive, part two
“What is the state of the Indian potato chip market? – just-food deep-dive, part one” was originally created and published by Just eata brand of GlobalData.
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