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
2
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
8
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.
12
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
14
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
16
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
18
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