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Bakery industry in India - Innovations, trends and challenges

Article · November 2014

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Ishrat Majid Varun Kumar

Lovely Professional University Bhupender Narayan Mandal University
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Gulzar Ahmad Nayik

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Bakery industry in India - Innovations, trends and challenges
Monday, November 17, 2014 08:00 IST
Ishrat Majid, Varun Kumar and Gulzar Ahmad Nayik

Introduction
Bakery products, due to high nutrient value and affordability, are an item of huge consumption.
Due to the rapid population rise, the rising foreign influence, the emergence of a female working
population and the fluctuating eating habits of people, they have gained popularity among
people, contributing significantly to the growth trajectory of the bakery industry.

Bakery holds an important place in food processing industry and is a traditional activity. With
regard to bakery products, consumers are demanding newer options, and the industry has been
experiencing fortification of bakery products in order to satiate the burgeoning appetite of the
health-conscious Indian.

A number of healthy products have been launched in the bakery segment, and are gaining
popularity at a high rate. The mounting presence of bakery chains has further triggered the
growth in the sector.

Indian scenario
India is the world’s second largest producer of food next to China, and has the potential of being
the biggest with its food and agricultural sector.

The Indian bakery industry is one of the biggest sections in the country’s processed food
industry. Bakery products, which include bread and biscuits, form the major baked foods
accounting for over 82 per cent of the total bakery products produced in the country.

It enjoys a comparative advantage in manufacturing, with an abundant supply of primary

ingredients required by the industry, and is the third-largest biscuit manufacturing country (after
the United States and China).
The bakery segment in India can be classified into the three broad segments of bread, biscuits
and cakes.

India’s organised bakery sector produces about 1.3 millions tonne of bakery products (out of
three million tonnes) while the balance is produced by unorganised, small-scale local
manufacturers.

Despite the fact that there are many automatic and semi-automatic bread and biscuit
manufacturing units in India, many people still prefer fresh bread and other products from the
local bakery.

Since the advent of multinational companies (MNC) selling pizzas and burgers in the country,
people are changing their tastes also.

Today, they are not restricted to bread, cakes and biscuits, but to other bakery products also.
With new launches by a few companies like Britannia, Biskfarm and Morish, competition has
increased.

Also, the Indian market is observing the establishment of bakery café chains in the form of
Barista, Café Coffee Day and Monginis.

The popular biscuit variants in India are glucose biscuits, Marie, cream biscuits, crackers,
digestive biscuits, cookies and milk biscuits.

As far as the Indian biscuit market is concerned, the shares of the branded and organised sector
and the unbranded and unorganised sectors are 60 per cent and 40 per cent respectively. Indian
bakery products, especially biscuits, are in great demand in developing countries.

Major players in this sector, like Parle, Britannia and ITC Foods, have captured the markets to a
great extent, with Britannia holding the leadership position.
In terms of value, Britannia and Parle account for around 38 per cent share each of the total
volume of branded biscuits marketed in India.

Britannia Industries, with an expected retail value share of nine per cent of the baked goods
category, proved to be the most successful player in 2013.

Baked goods are expected to grow by constant value at a compound annual growth rate (CAGR)
of two per cent over the forecast period.

The urban regions of India witnessed rapid growth and expansion of modern retail outlets in
2013.

However, modern retail outlets, such as hypermarkets and supermarkets, continued to remain
low, compared to the overall retail scenario in India.

Some of these modern retail outlets also had dedicated sections to bakery products.

Organised and unorganised bread players contribute around 45 per cent and 55 per cent of the
total bread production, respectively.

The organised sector comprises around 1,800 small-scale bread manufactures around India, 25
medium-scale manufacturers and two large-scale industries.

The branded packaged segment in this sector was estimated to be worth Rs 17,000 crore in 2012,
and is expected to grow at 13-15 per cent in the next three to four years.

Three or four large-sized players (namely, Britannia, Parle, ITC and Cadbury’s) constitute 75 per
cent of the market.
The bread and cake market is much more fragmented, with multiple regional and local players.

The major players in the bread segment are Britannia and Modern Industries Ltd, who hold about
90 per cent of the market share includes Britannia and Modern Industries Ltd.

Apart from these two, there are a few large regional players, such as Spencer’s in South India,
Kitty and Bonn in Punjab and Harvest Gold and Perfect in Delhi and the National Capital Region
(NCR).

The bakery industry in India has witnessed an annual growth rate of more than 15 per cent
during the past years.

There is an immense growth potential in the global and domestic markets. The unorganised
bread sector comprises an estimated 75,000 bread bakers, mostly located in the residential areas
of cities and towns.

Thirty-five per cent of the total production comes from the small scale sector, with about 1,500-
1,800 units in operation.

As the bread industry is a low-margin business, cost control is crucial in sustaining profitability
in the long run.

Innovation
With the advanced aspiration for increased socialisation, Indian consumers are forcing the
demand for more hang-out options.

The segment’s innovation has powered the rise of newer café formats like bakery cafés, which
reverse the concept of cafés by extending existing bakeries and chocolate retailers to offer
complementary beverage items.
Thus, unlike a regular café, a bakery café is, at the core, a provider of baked food, with the
beverage segment only a complement to the menu.

A typical bakery café menu includes a wide selection of breads, encompassing such exotic
variants as wheat, rye, five-grain, multigrain, cracked wheat, flute, baguettes and ciabatta, and
other baked goodies like brioches, croissants, cookies, muffins, cakes, scones, strudels, brownies,
pies and puffs.

The menu may also feature soups, salads, and other dishes, made using wholesome, locally-
sourced ingredients, cooked and served fresh.

These can include eggs in various avatars, freshly-made sandwiches, rolls, wraps and baked
beans on toast.

The concept of bakeries and bakery cafés, although it has gained traction in recent years, is not
new to India.

Earlier, bakeries were set up as a result of the British influence. Concepts like Wenger’s in New
Delhi provided a unique proposition at that time, which set the pace for the growth of bakeries
and bakery cafés in the post-Independence era.

Whether they are an extension of existing bakeries, or a menu-wise expansion of a café, bakery
cafés have become popular as a unique way of dealing with the classic dilemma for any café
format, i.e. how to drive sales at all hours of the day.

Traditionally, cafés, due to their strong beverage focus, used to see a lull in the visitor count
during lunch and dinner time.

The addition of a food component not only helped these cafés realize additional revenues by
catering to traditionally non–peak periods, but also offered their customers another eatery to
frequent at mealtimes.

Constant product innovation is a major challenge for a bakery café. Given that many of the food
products offered at bakery cafés are best enjoyed absolutely fresh, efficient production and
inventory management is a must-tackle challenge.
Despite the challenges faced by bakery cafés, the concept has a strong footing in the market
today, and looks set to grow in several cities, adding multiple brands to its fold.

The bakery industry would enjoy more innovative ideas and concepts, and is expected to grow
with the growing awareness and a flourishing economic environment.

Trends in the industry

E-retailing of bakery products;
Expanding foothold;
Improved packaging, and
Innovation in ingredients

The trends that have been gaining ground in the sector are e-retailing of the bakery products,
aggressive expansion plans of the incumbents and technological and ingredient advancements.

Despite a slight slowdown in India’s economy, bakeries continued to perform strongly driving
sales of baked goods over 2013.

Baked goods registered double-digit value growth of 10 per cent in 2013.

The growth of baked goods was driven mainly by the rapid expansion of modern retail outlets
across the country.

Challenges and opportunities

Bakers also face a few challenges, such as:

 Government regulations;
 Demand-supply chain;
 Rising prices of flour (maida), the major ingredient, and other raw materials such as oil,
fat and eggs, and
  The price-sensitivity of the market

The challenges would be category-specific. The biscuit category has seen rapid growth in the last
few years.

The implementation of packaging standardisation norms appears to be the big challenge.

Volatility in input costs is expected to remain, and this would add to the woes.

In bread, profitability has remained the focal point for some time. Players have been looking to
increase the share of value-added products, while focussing on operational efficiencies linked to
daily distribution.

The challenge for cakes would be to expand the consumption of packaged cakes. In fact, this
challenge is also a significant opportunity for this particular segment. With the right enablers
from product and supply chain, this is a category waiting to explode.

To overcome the challenge of rising production costs, many national and international
companies have come forward with solutions to reduce the production costs by offering on-site
trial demonstrations, which would reduce the percentage of gluten, fat, eggs and oil used in the
recipe.

Apart from this, it would also help to improve the nutritional value of the end-product by
reducing the usage of harmful chemicals and improved appeal.

Current research on the retail bakery industry

The bakery industry in India today has an important place in the industrial map of the country.

Moving ahead, the sector is expected to see more international brands entering the Indian
market.

If the reports are to be believed, the bakery industry has achieved third position in generating
 revenue among the processed food sector.

The market size for the industry was pegged at $4.7 billion in 2010, and is expected to reach $7.6
billion by 2015.

The report also mentioned that the shining star of the sector remains the biscuit segment, which
is expected to outperform the growth of the sector overall.

While the figures are indeed encouraging, there is a flip side to this story.

As the business and the industry thrives, the challenges accruing out of it are also growing at a
fast pace.

Admittedly, the Indian bakery industry is not really geared up to face the daunting task that lies
ahead, which is of striking a balance.

Like many industries, retail bakeries see rising costs in fuel, healthcare and other expenditures
cut into their bottom lines and increase the costs of doing business.

However, there has been an uptick in demand, including trends, such as cupcake stores and
gluten-free baked goods.

Driven by the evolving perception of bakery products in India and the changing consumer
preferences, the Indian bakery industry would touch levels of Rs 483 billion in the next five
years.

(The authors are research scholars at the Department of Food Engineering and Technology,
Sant Longowal Institute of Engineering and Technology [SLIET], Longowal, Punjab. They can
be contacted at [email protected])

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