India - What's for breakfast today?

It was the mention of an innocuous tax cut in the Budget presented by the Finance Minister in February 2008 which took everyone quite by surprise. The FM had halved the central excise duty on breakfast cereals – mainly cornflakes, as it so tran spired later – from 16 per cent to 8 per cent.
While this excise relief is unlikely to turbo-charge an industry that has been slowly chipping away at established and entrenched eating habits of Indians, the fact is that the breakfast cereal category has been growing – in the period between 2003 and 2007 the category, according to industry players, has doubled to the current level of approximately Rs 250 crore.
Perhaps the FM had taken note of the category’s rapid growth to offer the industry some concessions, a point emphasised by Anupum Dutta, Managing Director, Kellogg India Pvt Ltd, which claims the lion’s share of the category. As he told Business Line earlier, “By reducing the excise on breakfast cereals, it has finally been recognised as a mass consumer product rather than a premium one.” Kellogg India, the largest player in the ready-to-eat cereals category with a 70 per cent value share, has for years been trying to change breakfast habits, from traditional Indian ones to low-fat cereals.
But the excise rebate is unlikely to make an impact on the prices of the top brands. It will only help the manufacturers keep their prices in check. As Dutta points out, “Kellogg has not effected a price increase in any of its products since 2005. We have so far absorbed the cost increase in input costs. The excise reduction will ensure that we continue to deliver value to the consumer despite inflation and increase in input costs.”
As far as the muesli category is concerned, there is only a general reduction in Central excise duty from 16 per cent to 14 per cent as compared to the cornflakes category where the reduction is from 16 per cent to 8 per cent. “The muesli category, therefore, has got no substantial relief in the Budget. The increase in prices of raw material greatly offsets the general decrease in excise duty of 2 per cent,” says Shyam Bagri, Chairman and Managing Director, Bagrry’s India Ltd.
So, what has contributed to the sudden rapid growth of the category over the past few years? Increasing awareness of health, growing acceptance of packaged food, rising household incomes, nuclear families are some of the macro factors driving greater demand for value-added foods. Says Kellogg’s Dutta, “Consumers realise the need and relevance of fortified, low-fat breakfast cereals as a healthy breakfast option.”
Concurs Bagri, “It’s not a niche category anymore. The category is seeing a dynamic and positive growth. Bagrry’s itself has a year-on-year growth of about 30-40 per cent. The perception and expectations of consumers are also changing; the demand is getting more elastic. However, the key factor remains the quality.”
Bagri says health-consciousness and awareness, affluence and more disposable incomes as well as the fact that people are pressed for time and need something convenient and healthy, are contributing to the increasing popularity of breakfast cereals. . “Though the traditional Indian breakfast is still predominant, the market is changing – especially in the metros and many other cities where there is high literacy and a young working population,” he adds.
Market watchers say one of the biggest inhibitors to the growth of breakfast cereals as a category has been the price points. A 475 gm pack of Kellogg’s cornflakes, for instance, would set a consumer back by Rs 125. But Dutta says the company is addressing those issues with affordable pack sizes. Says he: “Our offerings actually work the consumer pyramid quite well. Our key new initiative is the new affordable range of Kellogg’s products, to address the evening snacking occasion — an important fourth meal occasion for today’s kids — with a tasty yet healthy nutritious snack. This Kpak initiative (in four variants) is available at a price point of Rs 10. Our regular packs start at Rs 30, quite an affordable price point for many households.”
Among the oldest brands in the cornflakes category is Mohuns from the Mohan Meakins group with a national presence. With lower price points, it claims to have a major share of the market. However, the rapid growth of the category has also induced new players to throw their hat in the ring. Murginns, a brand from KCL Ltd, one of the largest paper packaging companies in the country, is the latest to enter the fray. Sanjeev Khemka, President, KCL, is convinced that breakfast cereals is the category to be in as it will grow. Says he: “I am not sure if customers are ready for ready-to-eat foods. For lunch and dinner there’s a variety of foods on offer, but not so for breakfast; it’s something that one has to make at home, when you’re rushing to school and office and there’s no time to go out and eat.” Also, as he points out, travel, smaller families and modern retail, growing health-consciousness and a willingness to try different foods has helped convenience foods grow.
KCL Foods’ range of breakfast cereals include extruded products such as honey pops and honey rings, instant porridge, muesli, a recent launch of cornflakes and a planned one of oats. KCL, which intends a quick roll-out of its products, has also launched Murginns cornflakes. Cornflakes constitute 60-65 per cent of the breakfast cereals market. The fledgling company expects to challenge the big daddy of breakfast cereals, Kellogg’s, with its aggressive pricing. While Kellogg’s is priced at Rs 125 for a 475 gm pack, Murginns is priced at Rs 95. “The main issue in breakfast cereals is affordability. We will be 30 per cent lower than the market leader and 15 per cent higher than the next lowest price. With the right pricing the market will grow; we expect market growth to be 30 per cent this year.” Khemka estimates the size of the breakfast cereals market is Rs 250-300 crore but says it’s growing fast.
However, as the category is still nascent, there will be room for enough players, says the industry. As Shyam Bagri points out, “The market is surely big enough for more players. The market will grow and expand for new and existing players, too. The key issue remains the product quality, taste as well as how healthy it is.”
The other breakfast cereals category growing rapidly is oats, with Pepsi’s Quaker Oats, a global brand, too joining the fray. Oats, which do not attract any excise duties, has been growing rapidly, says Bagri, whose Bagrry’s brand of oats is claimed to be the market leader. As the oats used in the cereals are mainly imported, there are no official figures on the size of the market. But, industry players say it’s the fastest growing segment of the breakfast cereals category with growth in “high double digits.” Oats constitute 30 per cent of the breakfast cereals in volumes and 18 per cent in value terms of the category while the top four brands constitute 90 per cent of the oats market.
Bagri says growth has been rapid because of its health benefits. “Beta glucan, found only in oats, helps lower cholesterol and blood pressure. It helps diabetics by lowering post-lunch glucose levels,” he says. With India today the world’s coronary disease and diabetic capital, oats is a category expected to record rapid growth rates as consumers get increasingly health-conscious.