Retail stores like Food Bazaar and Spencer's are taking the negative labour out of Indian kitchens. For instance, Trumart will tie up with vendors for fresh idli/dosa batter, and a bakery to serve fresh bread. Catering to the needs of Indian consumers, retailers are going the extra mile to offer them experiences of touch, smell and feel of food.

Obviously, retailers are eyeing the unbranded ingredients in the daily diet of every Indian. With 60 per cent of the grocery basket still unbranded, the opportunity for brand creation is huge. As Damodar Mall, president of Food Bazaar, explains, “These food retailers come to this new opportunity with no ‘baggage’ and therefore, will have a mindset advantage over traditional branded guys.”

From the store-next-door to the local hypermarket, they all stock Gujarati, South Indian, Mangalorean or Keralite specialities in areas dominated by people from these regions. ‘But these are essential investments in the long-term understanding of the Indian psyche and ensuring customer pull,” says Dipankar S Halder, CEO of Spinach, which is localizing each format to suit the demands and sensitivities of the Indian market.

This marriage of modern retail and traditional format is unique to the Indian market, unlike the developed markets where modern formats constitute 90 per cent of total retail business. This could help push profits, especially when trade terms with fast moving consumer goods (FMCG) companies—manufacturing branded salt, atta, sugar, jams, pickles, biscuits, etc.—are becoming extremely demanding. Private labels contribute further to higher margins as they do not incur heavy advertising expenses associated with FMCG products.

“We have to work in tune with the demands of the Indian market where consumers are very demanding about the freshness of the food. We are focusing on regional merchandising and seeking gaps in pricing and value and moving our brands into such slots”, says Halder.

The mushrooming of multiple formats in departmental stores, hypermarkets and malls has spurred interest in the retail sector. Yet, whether this threatens the FMCGs will depend on modern retailers—how much they expand their volumes and how far they extend their reach. As Mall, president of Food Bazaar, explains, “It is a huge opportunity in India where 50 per cent of the Indian consumer’s shopping basket is unbranded. We have to Indianise formats and build around the strengths of the Indian market rather than blindly ape the developing markets.”

In contrast to developed countries, where huge retail chains like Wal-Mart, Carrefour, Sears, K-Mart, McDonald’s, etc. have replaced individual, small stores, retailers in India are catering to the Indian consumers’ demand for ‘your kind of place but our kind of food’.

They are wooing consumers to the organized outlets, from the unorganized sector. “The attempt is to have a multi-dimensional approach of meeting the needs of a Karol Bagh shopkeeper, a Tamilian diner or a Gujarati businessman while also meeting the demands of a global traveller,” said Arvind Mediratta, chief marketing officer (Indian Subcontinent), Yum! Restaurants International (owner of KFC, Pizza Hut, Taco Bell and other food chains).

Companies are also learning that local needs and global brand images need not conflict. KFC introduced a complete meal to the value-seeking Indian consumer. Pizza Hut customized its delivery model with international, Indian fusion products. Similarly, McDonald’s serves the much-Indianised (paneer salsa) wrap and (McAloo tikki) burger. Here, the focus is on having a high-margin portfolio even as food companies chase volumes with another basket of products.

Growing at 9 per cent, the Indian foods industry has set the growth agenda for modern trade formats. Not surprisingly, even Tefcom, the US producer of coffee whiteners, milk replacers and powders and egg substitutes, whose monthly sales from Europe is about US$ 2 million, believes its sales will be far more in India.

Even Australia's National Food Industry Strategy (NFIS) and Austrade—in their initial food-retail promotion in Bangalore, a city at the forefront of the recent shift towards modern food retailing through supermarkets—have tied up with FoodWorld and Nilgiris among others. Susan Nelle, MD, NFIS, says, "We will work with local retailers to establish a demand for Australian products and in the longer term hope to explore strategic alliances with Indian companies in areas like custom-made products and using local production facilities.”

Easing current restrictions on foreign investment in food retailing in India may open up more opportunities for international hypermarkets. In a scenario where retailers are drooling at the prospect of feeding the country’s burgeoning middle class, India’s food business can do with some freshly baked ideas.

- VOI Editorial Team