Maggi is back! According to several reports, the brand is all set to regain its supremacy in the Indian market. But this article is not about Maggi, it is about the packed foods category and why it is so difficult to develop and launch a new product in this category, though the entry barriers are next to none.
Within the fast-moving consumer goods industry, food hogs a 46 per cent lion’s share of the market, predominantly snacks, beverages and ready-to-eat packaged items. Unlike other categories, there are certain characteristics here that make product development difficult. What are they?
Food habits
First, is the Indian consumer, who is very heterogeneous when it comes to taste preferences. There are innumerable regional food habits across the country, and each segment wants food products to conform to its taste. This can turn out be a nightmare for any food company. Take the case of the ITC’s ‘Kitchens of India’ range: it had a dal makhani as well as a Bengal fish curry, both staple items from different cultures. The other aspect about the consumer is eating habits. A couple of decades ago, when Kelloggs asked consumers to have their breakfast cereal with cold milk, the product flopped. It was accepted only much later, when the habit change was not insisted upon.
Consumers also like to experiment only on the peripheral part of their food palate. For example, it is difficult to replace an idli or dosa in South India, or a parantha in North India. Once companies recognise this, they can develop products accordingly. The trend of increased travelling has also influenced consumers substantially. I know of many people who carry their ready-to-eat MTR packs of breakfast when they travel abroad so that they do not have to settle for anything less than their core food choice, even when far away from home.
Nature of the industry
Second, is the nature of the industry itself. The industry is cluttered, has too many players and the barriers of entry for product development are not very high. Often, there isn’t a need for high technology or capital-intensive equipment to develop a product, especially in the initial stages. This makes the category commoditised and unorganised, especially in segments such as snacks. The onus of brand differentiation, therefore, falls on brand-building or promotional efforts.
The limited shelf life of products in the food category also poses a big challenge. Almost always, consumers check the date of packaging, or PKD of the items, before buying. Thus, inventory management requires close attention.
Third, are the channels of distribution. Many segments, such as ice-creams or soft drinks, require cold storage. This means a higher financial investment for the retailer and the distributors. Food companies need to factor this in while pricing their products and also assess the channel’s capability, all the while also planning consumer reach. Additionally, these channels also play a very strong and influential role with the consumer in terms of choices. Hence, they need to be educated and treated well, by way of training programmes, incentives, trade margins, and so on. Companies should take note of this.
Promotion
Fourth, is the promotional effort involved. Unlike other categories, such as personal care, experience and product demonstrations are very important here. Consumers would like to sample the product before buying, so selling small packs that enable trial at a low cost is important. We see ₹5 packs of products like Horlicks and Tiger biscuits that cater to this need. Many a time, in order to circumvent product demonstration, companies resort to celebrity endorsements so that people are convinced to buy the product, as their favourite stars may be using it.
Take, for example, South Indian actor Radhika promoting Complan and and famous Bollywood starts endorsing soft drinks. Packaging also plays an active role in communicating the product’s benefits in terms of nutritional value, in addition to providing aesthetic and recognition benefits. The latter is very important; many snacks are packaged in bright colours to grab the consumers’ attention. In this, each colour connotes a different variant of the pack, for example, Kurkure has different colour-codes for its different flavours.
Testing
And, finally, the product testing protocols. This is probably the most important differentiator for the foods category. Given the intervention by regulatory authorities such as the FDA, it is expected that all companies have rigorous testing procedures in place. The fact that there are no existing norms for several food categories makes testing all the more difficult and potential health issues could have costly implications for the company. Negative backlash that can harm the brand is there for us all to see, whether it was the ‘Cadbury worm’ incident, or the Pepsi syringe incident in the US back in the 1990s. Companies must keep this in mind and make sure that the PR machinery is well-trained.
In conclusion, developing new products in the foods sector is not easy. It poses several challenges, right from the nature of the consumer and the nature of the industry, to channel management, promotional complexity and testing protocols. Only companies that cross these bridges will be able to compete successfully in the market place.