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 India | FMCG 22 March 2019

Sector Update
FMCG

Millennials: Eat Good, Look Good, Feel Good Food space is expected to perform better
We hosted the second edition of Elara Consumer Conference, than HPC in CY19
Millennials 2.0, recently. The event hosted domain experts across Category Growth in CY19 (%)

categories, channels and retail measurement. They shared insights into Food 12-13
Global Markets Research

consumer behavior, strategy, market execution and data analytics. HPC 10-11
Source: AC Nielsen, Elara Securities Research
The following are some key takeaways:
Salience of food products increasing in
 India today is the only large market reporting double-digit growth in
every retail outlet
the FMCG space, at 10.7% in CY18 (Source: AC Nielsen). Off take FMCG industry Growth in PDO vs
growth was 5% in CY16 and has started to inch up into the double Contribution
- sales CY18 vs Dealer
(%)
digits (CY18: 10.7%). Wholesale-driven markets like North India are breakdown CY17 (%) (x)

bouncing back. Food 55 15.1 7

Non-Food 38 12.1 5
 Salience of food products is increasing in every retail outlet as
Source: AC Nielsen, Elara Securities Research
witnessed by rising throughput per store. The food space is
expected to perform better than Home & Personal Care (HPC) in Consumer offtake bounce back post
CY19. Britannia (BRIT IN, Accumulate, TP INR 3,478) and Nestle demonetization (CY16)
(NEST IN, Accumulate, TP INR 11,716) are growing their direct reach 25
every year as a result of the same premise. 19.1 18 18 18
20
15 14 13.8
 Consumption-led growth in CY19 is likely to be ~7-8%, tad lower than 15 11.7
9
10.7% in CY18. The bearish outlook for CY19 is due to high base.
(%)
10 7 7.4

5
 Health (juices), organic, babycare products (diapers, skincare &
wipes), quick & easy (RTE & RTC products), and children & school- 0

CY11
CY08
CY09

CY12
CY13
CY14
CY15
CY16
CY17
CY18
oriented foods are among the fastest-growing categories on

CY10
eCommerce as in CY18. FMCG Offtake growth

 Super premium category (22% of Health Food Drinks [HFD] sales) is Source: AC Nielsen, Elara Securities Research
driving volume and marketing is centered on ―high science &
Online transactions gain salience on
benefits delivered‖ GlaxoSmithKline Consumer Healthcare (SKB IN, eCommerce
CMP: INR 6,929, Not Rated). HFD is an urban category (80% of sales
(%) Cash Online
by value), but rural markets are growing faster than urban and
Pre-demonetization (2015) 60 40
sachets are driving growth in the rural markets.
Demonetization (2016) 30 70
 Dairy is a game of scale alone: Fresh milk products, which comprise Post-demonetization (2017) 50 50
bulk of milk consumption (60-65% of milk production is turned to
Source: bigbasket, Elara Securities Research
pouch milk) in India have low operating margin of ~5%, but since it
has the highest penetration level of 90%, the biggest benefit of
conversion from unorganized to organized market will come to
dairy firms that have brands in pouch milk, curd and paneer
(Heritage Foods [HTFL IN, Buy, TP: INR 825).
 ―Avvatar‖ (PARAG IN, Buy, TP: INR 366) Was launched to be a
clutter-breaking product in the fragmented segment of whey
protein in India (40% share with Glanbia). It is currently serviced by
expensive imported brands with old stocks and probably not as
efficient due to the product age.

 eCommerce channel is used for running cost-effective experiments,

but general trade (GT) remains relevant due to reach. BB Instant is a
new initiative by bigbasket in terms of installing vending machines,
which serve cold as well as hot products in the same vending
machine. The pilot has been launched in residential complexes in
Bangalore, and underscores the importance of having an omni-
channel presence.
2
Sagarika Mukherjee • [email protected] • +91 22 6164 8594
Shubham Maheshwari • [email protected] • +91 22 6164 8562
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 FMCG

Table of content
AC Nielsen - Sameer Shukla, Executive Director ………………………………………………………………………………………………………………. 4
Strong throughput increase per store for packaged foods

Amul - RS Sodhi, Managing Director ………………………………………………………………………………………………………………………………….. 6

Dairy is a game of scale alone

GlaxoSmithKline Consumer Healthcare - Manish Syag, General Manager South India ……………………………………………… 9
Health drinks category growing fastest at the top end

Parag Milk Foods - Vinay Jain, VP of Consumer Whey Business ……………………………………………………………………………………. 12

―Avvatar‖ whey protein – Making headway in a cluttered market

FMCG
bigbasket - Geetha Mahadevan, Brand Intelligence ……………………………………………………………………………………………………….. 13
Striving to become top 3 retail grocer in India

Tata StarQuik - K Radhakrishnan, Co-founder ………………………………………………………………………………………………………………….. 15

Why is everyone chasing grocery?

Elara Securities (India) Private Limited 3

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 FMCG

AC Nielsen
AC Nielsen, founded in 1983, is based in Mumbai. Nielsen (India) operates as a subsidiary of AC Nielsen Corporation.
It monitors consumer behavior in more than 100 countries to present a comprehensive view of trends and habits. The
company offers retail & shopper marketing, brand & portfolio management, pricing & promotional strategies, product
innovation & renovation and social media intelligence services. It also measures shopping & media consumption
trends of consumers and viewership data & analytics primarily for the media and advertising industries across
television, online and mobile screens.

Sameer Shukla, Executive Director

Sameer currently leads Retail Measurement Services (RMS) for India, Bangladesh, SriLanka
and Nepal markets and has been working with Nielsen for around 20 years.He has varied
experience of working in FMCG, Consumer Durables and Social Enterprises sectors in India
and globally. He has also spent his budding age in Social Research areas working on
FMCG

policy/strategy formulations to micro-level insights with Government Bodies, UNO and

international NGOs. He is a graduate in Statistics and Anthropology, and holds a post
graduation degree in management.

9% and 11%, respectively. The substitution effect of

India’s opportunity drivers: digital media is being felt the most in the metros.

 Younger demographic dividend: India will become Exhibit 2: Digital media complementing traditional
the largest country globally in terms of population media and not cannibalizing it
size at 1.6bn by 2030. It currently has ~1.05bn Use in the past one-month Print TV Internet
citizens in the age group of 15-60 year old vs China, CAGR over 2016-18 (%) 9 6 12
which is at ~0.98bn Consumer base (mn) 411 782 279
Source: AC Nielsen, Elara Securities Research
 Multifold income expansion: India is growing at 2x
the world. Top 4 economies are showing trends of India only big market with double-digit FMCG growth
declining GDP growth. The elite (annual household
 India is the only big market with FMCG growth of
income >USD 30.8k pa) and the affluent class
13.8% while global growth is at 2.0-2.5%.
(annual household income of USD 15.4-30.8k pa)
currently comprise 1.5% and 3.0% of the population,  During CY14-16, there were macro issues and
respectively, and is likely to increase to 5.0% and demonetization, wherein FMCG growth fell into the
11.0% by 2030, respectively single digits (7% in CY14, 9% in CY15 and 7.4% in
CY16); it has bounced back to 13.8% in 2018
 Connected consumers make informed choices and
are open to experimentation: By 2030, there will be  Consumption-led (volume growth) growth was at
~1.2bn smartphone users in India compared to 5.0% in CY16 and it has started to inch up into the
0.44bn in 2020. Mobile is the most preferred device double digits at 10.7% in CY18.
for accessing the internet (94% of connected Exhibit 3: Consumer offtake bounces back after
population accesses internet through mobile demonetization in CY16
phones). Consumers are more connected than ever,
25
and hence they make informed choices and are also
19.1
open to experimentation due to increased exposure. 20 18 18 18
Internet penetration will become 4.5x from 13% in 15 14 13.8
15 11.7
2016 to 60% in 2030
(%)

9
10 7 7.4
Exhibit 1: Smartphone users in India
Year CY16 CY20 CY30 5

Consumer base (mn) 300 440 1,200 0

CY09
CY08

CY11

CY12

CY13

CY14

CY15

CY16

CY17

CY18
CY10

Source: AC Nielsen, Elara Securities Research

In print media, English-language journals are growing at FMCG Offtake growth

the slowest pace at a 3% CAGR over CY16-18 while
Source: AC Nielsen, Elara Securities Research
regional and Hindi journals are growing at a CAGR of

4 Elara Securities (India) Private Limited

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 FMCG

Exhibit 4: Wholesale-driven markets like North India Exhibit 6: GT remains relevant due to reach
are bouncing back Channel Contribution (%)
Population reach by
Region-wise offtake channels (mn)
CY17 CY18 Comments Traditional 89 1000
growth rates (%)
North India 11.3 16.7 Rebound visible in offtake Modern trade 11 43
Dragged by GST and eCommerce 2 1.9
East India 14.1 12.6
demonetization impact
Source: AC Nielsen, Elara Securities Research
Maharashtra & Gujarat did
West India 17.2 14.6 not do well post GST &
Bearish outlook for CY19 due to the high base effect
demonetization
Agricultural crisis in
South India 14.5 12.6 Karnataka and slowdown in
Growth projection for 2019 is lower at 11-12% than
Tamil Nadu 13.8% in CY18, due to the high base effect of 2018 as it is
Source: AC Nielsen, Elara Securities Research the year when some markets, especially North India, had
Regional firms grow faster than national companies started to see an uptick. Inflation expectations for CY19
are built into 4.0% YoY; hence, consumption-led growth
Smaller firms with regional or local presence operating in in CY19 is expected to be ~7.0-8.0%, slightly lower than

FMCG
1-2 zones only are growing at 21% YoY, well above the 10.7% achieved in CY18.
double-digit growth than what larger firms are
witnessing. Exhibit 7: Salience of food products increasing in
every retail outlet
Exhibit 4: Long tail in manufacturing growing at the FMCG industry - Contribution Growth in CY18 vs PDO vs
fastest pace sales breakdown (%) CY17 (%) Dealer
Food 55 15.1 7x
Top manufacturing firms Contribution by Growth
by size value (%) YoY (%) Non-Food 38 12.1 5x
Source: AC Nielsen, Elara Securities Research
Top 50 60 11.6
50-100 8 13.1 Exhibit 8: Food space is expected to perform better
than HPC
101-300 11 13.7
Category Growth in CY19 (%)
300 & beyond 21 21
Food 12-13%
Source: AC Nielsen, Elara Securities Research
HPC 10-11%
Exhibit 5: National and regional firm market Source: AC Nielsen, Elara Securities Research
breakdown
Smaller food firms are growing fast and are profitable
Contribution split (%) by value
Around 700-800 manufacturers come into the market
Regional every year in the namkeen category, according to AC
, 31 Nielsen; at the same time, a similar number of
manufacturers go out of business. Salty snacks are
growing at 20% YoY every year (Source: AC Nielsen).
Companies which post INR 250mn in sales are
aspirational and can grow to INR 500mn to INR 1bn in
National sales in next couple of years. These companies are
, 69
profitable, their performance is consistent and they are
funding growth through internal accruals. Refined and
non-refined edible oil also is growing at a fast pace.
Source: AC Nielsen, Elara Securities Research

eCommerce channel for running cost-effective trials Exhibit 9: Innovation is bigger in the food category
than any other space
eCommerce channels, such as Amazon, Nykaa and Food category Offtake growth YoY (CY18)
bigbasket, offer companies scope for running cost- Vermicelli & noodles 15
effective and frequent experiments with new product Chocolates 19
developments (NPD); once they meet internal targets, Biscuits 14
the products are scaled up and launched in modern Non-refined oil 16
trade as well. eCommerce today has become 2% of total Refined oil 19
FMCG sales in India. Non-food category Offtake growth YoY (CY18)
Toothpaste 9
Facial Bleach 7
Source: AC Nielsen, Elara Securities Research

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 FMCG

Amul
Amul is a cooperative brand managed by the Gujarat Cooperative Milk Marketing Federation (GCMMF). It is India’s
largest food product marketing organization formed in 1948 and is based out of Anand, Gujarat. Its product range
comprises milk, milk powder, health beverages, ghee, butter, cheese, pizza cheese, ice- cream, paneer, chocolates and
traditional Indian sweets. GCMMF is India’s largest exporter of dairy products. Several Amul’s products are available in
the US, Gulf countries, Singapore, Philippines, Japan, China and Australia.

RS Sodhi, Managing Director

Mr. Sodhi joined GCMMF (AMUL) in the year 1982 and rose to the present level of Managing
Director in June 2010. For last more than 35 years, Mr. Sodhi has been providing dynamic
leadership to Amul and the entire Indian dairy industry, especially the critical cooperative
dairy sector, which generates livelihood for millions of dairy farmers and provided essential
goodness of milk nutrients to one billion Indian consumers. Due to Mr. Sodhi’s leadership,
FMCG

Amul accounts for 25% of organized dairy industry, within India. He has inspired Amul to
achieve 1st rank in Indian food category as per brand trust report 2015 and 13th position on
the list of top milk processors of the world and win several national and international awards
for innovations in dairy sector.

Behemoth in production & consumption of dairy Exhibit 10: In India, 25% of dairy sector (USD 100bn)
is organized
 In the next five years, the world excluding India is
expected to produce 25mn tonnes whereas India (USD bn) Organised
alone will be producing 30mn tonnes. 25

 Food industry will grow with population and is

irreplaceable and will always have demand.

 Total milk market is growing at 5% while the

organized sector is growing at 14-15%
Unorganised
 60-65% of total milk is used as fresh milk and 75
pasteurized milk in India

 Milk per capita consumption was at 110g until 1970s Source: Amul, Elara Securities Research

(and declining), now it is at 370-380g. Per capita Exhibit 11: India has 60% marketable surplus of total
consumption (PCC) is expected to reach 800-850gm milk produced
per day (equivalent to Europe and the US today) by
2030
Self
 Currently, the organized sector produces 90 million consumption Organized
40% 33%
litres per day (MLPD) (total is 400MLPD), which will Marketable
become 300MLPD by 2028 surplus
60%
 India will require 500mn tonnes (population of
1.75bn with PCC of 800gm per day) of milk by CY50- Unorganized
60. Currently, the country produces 176mn tonnes 67%
(FY18 figure as per National Dairy Development
Board).
Source: Amul, Elara Securities Research

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 FMCG

Exhibit 12: India produces 55% buffalo milk from  5-6% EBITDA margin in the dairy business is good
one-third of cattle (milking) population and efficiently run

 Amul has 3.6mn farmers under its procurement

network and comprises 7-8% of India’s production.

Freshness, small size packs and taste – key to success

200 mn
cows,  Freshness is important and its significance is
45% 100 mn increasing day by day
buffalos,
55%
 Freshness, small packs (INR 10 SKUs) and taste are
important parameters, followed by low sugar, good
for digestion, high protein and fats trends
Source: Amul, Elara Securities Research  Eastern markets are growing faster than Mumbai &
Delhi and other big cities in packaged foods

FMCG
Exhibit 13: Amul increases cow milk salience
100  Demand for packaged dairy products is coming from
80 the rural markets as well, not just metros
80
(%)

58 Fresh products see high conversion

60
42  All over India cheese penetration is 4% (volume
40 growth is in the double digits) and in urban
20
20
penetration is 12-13% while milk, curd, paneer
penetration is 90%. Hence, the biggest beneficiary of
0 conversion from the unorganized to the organized
1982 2018 market will come to fresh milk products
Buffalo milk Cow milk
 In fresh products, the difference to customers is 5%,
Source: Amul, Elara Securities Research
which includes distributor margin and retailer
Younger group does not consider dairy farming cool margin for Amul. Margin in chilled, butter, cheese,
Key risks to the sector: 1) the next generation of farmers baby food is 8-12% while margin in ghee is 6-7%.
are growing food although per capita income growth Margin in frozen products is 16-20%
has been 4% only in agriculture vs 14% in animal  Adulteration is a big risk and testing machines are
husbandry 2) animal productivity is low, currently it is 4 expensive. Farmers are adding vegetable oil in milk
LPD while in developed countries it is 10 LPD, Israel it is as higher fats in milk give more returns. Analog
30 LPD while in the US & Europe it is 20 LPD each, 3) products in cheese, paneer, butter and ghee. Hence,
Free trade agreement (FTA) has led to growth of 40%+ strong brands can be built around freshness, quality
in China’s production since 2007. Imports are a big and hygiene
challenge to India’s dairy sector, as it is not competitive in
Milk price could be inflationary in next three years
terms of prices in the global dairy trade.
 In 2014, skimmed milk powder (SMP) used to be sold
Dairy is a game of scale alone
at INR 300 per kg in India, which reduced to INR 100
 Around 36-38% of the price goes back to farmers in per kg over CY15-16 and now it is sold at INR 180-
Europe and the US whereas in India it is 75% from 190 per kg. Most of the crash in milk powder prices
cooperatives and Amul gives back 80-85% of MRP was led by the sharp fall in dairy prices globally, led
 Small unit pack demand is high. It has been doubling by lifting of quota system in Europe on 1 April 2015,
capacity every year. India is INR 10 price point which has led to rapid stockpiling amid slowdown in
China and purchase ban by Russia on Europe.
country for packaged foods

 Dairy is a business of scale as profitability is low. The

dairy company becoming a national brand is difficult
as it is loss-making to operate from long distances as
products are of low value and need refrigeration in
transit

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 FMCG

Exhibit 14: SMP prices starting to see an uptick However, since dairy prices have not seen an uptick
5,000 4,562 in the past two years, especially in Maharashtra, and
supported by State subsidies, excess inventory is
4,000
3,214 3,016 getting used up and should lead to inflation of
(USD/tonne)

3,000 around 30% in the next three years (>INR 30 per liter
2,164
1,911 1,921 2,090 for cow milk) from the current low levels of INR 20
2,000
per liter (excluding the subsidy)
1,000

0
FY13

FY14

FY15

FY16

FY17

FY18

FY19
SMP prices

Source: dairy.ahdb.org.uk, Elara Securities Research

FMCG

Exhibit 15: Amul always increases procurement prices Exhibit 16: Amul pays higher procurement prices than
irrespective of global trends other firms for buffalo milk
30 28 29 50
26 26 43 43
24 39 40
25 22 40 37
33
(INR/kg)

(INR/kg)
20
30
15
20
10

5 10

0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY13 FY14 FY15 FY16 FY17 FY18
Average cow milk procurement prices - Amul Rajkot Average buffalo milk procurement prices - Amul Rajkot

Source: Amul, Elara Securities Research Source: Amul, Elara Securities Research

Exhibit 17: Procurement prices fall in Maharashtra in Exhibit 18: Procurement prices in Delhi fall in FY18
FY18
35 42 39 38
29 30 31 36 36
28 34
26 35
28
22 27
(INR/ltr)

(INR/ltr)

28
21
21
14
14
7 7

0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY13 FY14 FY15 FY16 FY17 FY18
Cow milk procurement prices - Maharashtra Milk prices - Delhi

Source: Industry, Elara Securities Research Source: Bloomberg, Elara Securities Research

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 FMCG

GlaxoSmithKline Consumer Healthcare

GlaxoSmithKline Consumer Healthcare is a food processing company. The products of GSK Consumer are categorized
as nutritional and over the counter (OTC) products. The nutritional division includes health food drinks like Horlicks,
Boost, Maltova and Viva. The company's OTC products include Crocin, Eno and Iodex. It also sells toothpaste under
the Sensodyne brand. The company has manufacturing facilities at Nabha in Punjab, Rajahmundry in Andhra
Pradesh and Sonepat in Haryana. It markets products in India, Sri Lanka, Bangladesh, Nepal, the Middle East,
Myanmar, Kenya, Malaysia, Mauritius and Pakistan.

Manish Syag, General Manager South India

Manish is currently leading the biggest geography of South India for GSKCH with dominant
presence in nutrition, wellness and oral care categories. Previously, as GM – North India, he
has led the fastest growing region for GSKCH and delivered market beating growth in all
participated categories and also spear headed the network expansion for GSK in 2013.

FMCG
Mothers & children equal influencers of purchase  Television commercials (TVC) are generally attached
to cricket, badminton, football sport stars for Boost.
 Nine out of 10 children are deficient in micro
nutrients in India and four out of 10 are Horlicks is also consumed by adults compared to
malnourished, according to GSKCH other HFDs at around 40%

MT, chemists are key channels to be tapped for HFD

 With an increase in the number of ―pestering‖
children who are connected consumers and  The company is driving communications through
extremely well-informed, the proposition for HFD advertising the ―relevance‖ of the product for base
has to be around energy and taste. The mom Horlicks while the super premium category is driven
proposition, on the other hand, is centered around by experts and doctor’s advocacy. Key channels
health benefits, as traditional foods or Do-It-Yourself tapped are modern trade and chemists for this
(DIY) are increasingly getting substituted. Different reason.
taste and flavors are being launched to attract
Exhibit 20: HFD channel breakdown of GSKCH
children in this category.
(value)
Exhibit 19: Children and moms are equal influencers
Modern
for Base Horlicks trade
CY16 (%) HFD Horlicks Boost 22%

Kids 48 50 42 Grocers
42%
Moms 52 50 58
Source: GSKCH, Elara Securities Research

“Boost is the secret of their energy” Pan plus Chemist

+food 32%
 Boost is a INR 7bn brand and the No 1 brand in 4%
South India (Brown HFD) and has grown at 13% YoY
Source: GSKCH, Elara Securities Research
in volume terms in CY18 (20% higher than
category). The brand has a 32.4% volume market Exhibit 21: HFD channel breakdown of GSKCH
share and penetration level is 29% in the country, (volume)
according to AC Nielsen. The brand has gained
volume share (+0.6%) and penetration levels (+3.7%) Modern
trade
in CY18. Boost is the most penetrated brand in South 22%
India
Grocers
50%

Chemist
23%
Pan plus
+food
5%
Source: GSKCH, Elara Securities Research

Elara Securities (India) Private Limited 9

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 FMCG

 East India is the malt dominant region. North and  Key competitors in this popular segment are
West India are chocolate-liking regions while South Complan (Zydus Wellness) and Bournvita
India is moving towards Chocolate Horlicks. Hence, (Mondelez). There is not much competition in the
the key brands that can grow fast are Chocolate premium category
Horlicks and Boost.
Exhibit 24: Complan is the most expensive in the
HFD is urban category; rural penetration still low popular category
Price
 Value growth in the category is being driven by Brands Company GM
(INR)
INR/ kg
super premium (22% of sales) and popular segment Complan- Growth Drink Mix- Zydus
500 315 630
(63% of sales), which have grown at 16.7% and Kesar Badam Wellness
6.4%, respectively, in CY18. In volume terms, super Horlicks- Health & Nutrition
GSKCH 400 250 625
premium and popular categories grew almost at par Drink- Kesar Badam
with each other at 12.6% and 11.7%, respectively. Complan- Growth Drink Mix- Zydus
500 280 560
Royale Chocolate Flavour Wellness
Value growth is lower than volume growth, due to
Zydus
FMCG

rate cuts in GST being passed on in CY18, which Complan- Magic Chocolate 500 245 490
Wellness
were announced for the HFD category only in Boost Nutrition Drink - Health,
GSKCH 450 217 482
November 2017 (GST Phase 2). It expects a 9-10% Energy and Sports
CAGR over CY19-21 for the HFD category overall Boost Drink Powder- More
GSKCH 75 35 467
Stamina
Exhibit 22: Super premium and popular segments are Horlicks- Health & Nutrition
GSKCH 500 222 444
driving growth for the category Drink- Classic Malt
Bournvita- 5 star Magic Pro-
Cadbury 500 218 436
Growth Health Chocolate Drink
Super Premium Bournvita Pro- Health
16.7% 22% Cadbury 500 204 408
(API>140) Chocolate Drink
Bournvita- Health Drink Cadbury 75 30 400

Premium
Horlicks- Health & Nutrition
GSKCH 500 199 398
1.4% 12% (140>API>120)
Drink- Chocolate
Source: bigbasket, Elara Securities Research

Exhibit 25: Health drinks for children lag in growth

6.4% 63% Popular (>2 yrs) – driving growth in super premium segment
(120>API>80) Price
Brand Company Gm INR/Kg
(INR)

Category size INR 62,420mn Enfagrow A+ Chocolate Reckitt Benkiser 625 400 1,563
Enfagrow A+ Vanilla Reckitt Benkiser 625 400 1,563
Source: GSKCH, Elara Securities Research
Horlicks Growth Plus GSKCH 520 400 1,300
Exhibit 23: Super premium segment is driving volume
Pediasure Chocolate Abbott 520 400 1,300
growth in HFD category
Source: Amazon, Elara Securities Research

Growth
Super Premium
12.6% 9% (API>140)

Premium
2.7% 10% (140>API>120)

11.7% 79% Popular

(120>API>80)

Category volume size 122877 tons

Source: GSKCH, Elara Securities Research

 HFD category volume picked up in CY18, and has

reverted to CY15 levels (volume was affected due to
erratic weather in South India over CY15-16

10 Elara Securities (India) Private Limited

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 FMCG

Exhibit 26: Protein supplements for adults to expand Exhibit 27: Rural growing faster than urban in HFD
the category beyond children
Rural
Protein 22%
Price INR/
Brand Company content per Gm
(INR) Kg
100gms
Nestle Health Science
Resource High Protein - Nestle 45 895 400 2,238
Urban
Vanilla
78%
Protinex - Original Danone 32 585 400 1,463
Protinex - Chocolate Danone 32 520 400 1,300 Growth
Protinex - Vanilla Danone 32 520 400 1,300 Rural - 13.4%
Urban - 7.1%
Horlicks - High Protein
Drink- Chocolate, GSKCH 33 520 400 1,300
Protein+ Source: GSKCH, Elara Securities Research
Horlicks - High Protein
GSKCH 33 495 400 1,238
Drink- Vanilla, Protein+ Exhibit 28: Sachets driving growth in rural markets

FMCG
Source: Amazon, Elara Securities Research
Rural
Driving penetration levels through sachets 23%
 It is an urban category and is 78% of value and
growing at 7.1% pa, while volume in urban markets
is growing at 8.7% pa. Rural is growing faster at Urban
77%
17.2% in volume terms
 Rural markets (14% penetration levels) and NW Growth
Rural - 17.2%
(urban) are less penetrated markets; Tamil Nadu Urban - 8.7%
leads across both urban and rural
Source: GSKCH, Elara Securities Research

 The low unit pack (LUP) is driving penetration.

Sachets have become 15% of sales and grew at 43%
YoY in CY18 — it also had led to the revival of the
category. Penetration increase in 2018 was led by
sachets. The sachets are available across 900,000
outlets compared to total reach of 2.5mn for the
company as a whole. Horlicks leads the sachet
segment with 2x volume compared to Boost

Elara Securities (India) Private Limited 11

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 FMCG

Parag Milk Foods

Parag Milk Foods, founded in 1992 by Devendra Shah, is one of India's elite private sector dairy companies, with a
diverse portfolio of 15 consumer-centric product categories. It manufactures products under brands, Gowardhan, Go,
Pride of Cows, Topp Up, Milkrich, Slurp and Avvatar The company’s portfolio includes ghee, fresh milk, skim & whole
milk powder, ultra high temperature (UHT) milk, paneer, processed & natural cheeses, cheese spreads, butter, dahi,
yohurt, dairy whitener and gulab jamun mix. Pride of Cows is a brand of fresh farm-to-home milk; Topp Up and Slurp
are predominantly dairy-based beverages for instant consumption and Avvatar is whey protein for sports nutrition.

Vinay Jain, VP of Consumer Whey Business

Vinay Jain, VP of Consumer Whey Business, Parag Milk Foods has a rich experience in setting
up business operations, building business strategy, GTM strategy, NPDs development.
Currently, he is involved in setting up business and operations of sports nutrition business,
which has the ―Avvatar‖ brand. Prior to joining Parag Milk Foods in May 2017, he worked
FMCG

with Amway for over 15 years (joined in May 2002). He holds a B.Tech degree from NIT,
Durgapur and MBA degree from MDI, Gurgaon.

Avvatar: clutter-breaking product in imported market Consumer profile & what it is looking for

 It is a INR 13.80bn sports nutrition category and  23-26-year-old age group: All about value for
growing at 22% YoY due to higher awareness money, partly still funded by parents, opinionated,
affluence, and health conscious consumers low brand loyalty and more experimental

 Import duty is high in whey proteins and the  27-32-year-old: prefers online shopping, beginning
company sells vegetarian products vs non- to save and invest and brand loyalty
vegetarian products from imported markets. The
 33-39-years-old: Decisions are dependent on family,
imported brands take 7-8 months to reach
reviews, time is precious, prefers brands, save money
destination; as a result, it also affects its performance.
but has loads of money
Parag is the only whey protein manufacturer in India
 Harbor curiosity to know more
 Glambia has a 40% share in India. eCommerce is
10% and 30% for the rest of the brands in India  High tolerance vs low tolerance (millennials have
low tolerance for bad quality products)

 Eating healthy for millennials is synonymous with

natural food that is eco friendly and enhances
animal welfare & farmer livelihood

12 Elara Securities (India) Private Limited

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 FMCG

bigbasket
Big Basket (BB), launched in 2011, is the largest online grocery supermarket in India. It came into being around the
time when eCommerce was in its nascent form in India. BB was founded by Hari Menon, VS Sudhakar, VS Ramesh,
Vipul Parekh and Abhinay Choudhari. It is headquartered at Bengaluru and delivers to 26 cities in India. BB currently
offers more than 18,000 products across categories and features more than 1,000 brands.

Company snapshot
 26 cities & growing  99% on time delivery
 10mn customers  96% availability of 25,000 stock keeping unit (SKU)
 125,000 orders delivered per day  3 minutes per session, 3 sessions per order
 Average ticket size: INR 1,500  1mn sessions per day
 99.5% fill rate  80% of orders from app
Source: bigbasket

FMCG
Geetha Mahadevan, Brand Intelligence
Geetha Mahadevan is heading the Brand Intelligence of BigBasket and has been
instrumental in setting up the Mumbai and Pune business for the company. She has been
with Big Basket since July 2012. Prior to this, she worked with Aditya Birla Retail in
merchandising.

Doubled business in CY18; ditto for CY19 Exhibit 29: High growth categories for bigbasket
 BB wants to become Top 3 retail grocer in India with  Health  Imported & gourmet

omni-channel presence; goal is to become as big as  Organic  High protein including meat
D-Mart, Reliance Retail and Big Bazaar  Quick & easy  Baby non-food
 Fresh  Children and school-oriented food
 It has doubled sales in CY18 without adding any
Source: bigbasket
new city, and plans are to double in CY19 as well
Plans to become omni-channel firm; D-Mart biggest rival
 Tier 1 (eight cities) contributed 70% of business.
Operations in Top 3 cities are EBITDA- Channels through which bigbasket sells:
positive currently and 90% of Tier-2 cities have been
 Full service delivery (FSD) makes up 70% of orders.
EBITDA-positive from Day 1. It integrates fresh
For FSD, delivery cost is around 6-7%
vegetables and fruits network before launching in
any new city so that online traffic is present from  Express is 3,000-3,500 SKU delivered in 90-120
Day 1 minutes; two-wheelers are used for delivery

 Consumers in Tier-1 cities are looking for  BB daily: 5:30-8.00am delivery time includes milk,
convenience and quality while consumers in Tier 2 eggs & bread; last order at 10:00pm the previous
cities still considering grocery shopping as an event night. BB daily cost is 2% (average ticket size is INR
and are looking for competitive pricing 320), FSD has 6.5-7% cost. BB is launching BB daily
only in high density areas i.e. close to or in the
 As BB is a pure grocery-plus FMCG eCommerce
vicinity of residential complexes
company, the number of items per basket is higher
at 22-25 than 4-5 for Amazon  BB Instant is a new initiative in terms of installing
vending machines, which serve cold and hot
 BB has recently launched its beauty segment and is
products in the same machine. BB has piloted it in
targeting existing consumers currently. It plans to
Bangalore with installations in 1,000 locations in
scale it up further, and Nykaa is big in this segment
residential complexes. It was launched to capture
impulse buying

 BB HORECA: For servicing B2B customers like

restaurants for food items

Elara Securities (India) Private Limited 13

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 FMCG

 BB Star was launched in 2011 and it is a loyalty Consumers migrate towards online payment
program, as 85% of customers show loyalty post the
 Earlier cash used to be the preferred way of
third order placement. This is to create a habit
transaction with 60% of transactions done through
Data analytics on profiling keeps fill rates near 100% cash pre-demonetization; it is now 50% through
cash
 Data analytics on customer profiles helps execute
micro strategies. BB has classification of households Exhibit 35: More transactions done online rather
under lifestyle, life stage (families with children than cash
under two years old, the elderly in joint families and Cash Online
joint families without the elderly). Customers also are Pre-demonetization (2015) 60 40
profiled under various product categories, such as Demonetization (2016) 30 70
Post - Demonetization (2017) 50 50
FMCG, only organic, only Ayurvedic, only premium,
Source: bigbasket, Elara Securities Research
high indulgence and dietary products.
Private labels only for categories with no branded play
Exhibit 30: Health juice brands show higher salience
FMCG

with HH having growing children  BB will not enter into a category where it has high
salience of branded firms. For instance, there are
HH profile - health juice brand
HH with very few private labels in personal care. Categories
children(4 like homecare, gourmet and branded food can have
to 16 yrs)
24%
high salience of private labels. BB has the highest
Health collection of cereals and grains under its private
HH with
Conscious label, as apart from Basmati rice, no other cereal or
Babies(1-
HH
4yrs) grain has high salience of branded firms
48%
12%
HH with  The company also sources 65% of its requirement of
infants (0-
fresh vegetables and fruits from its own farmers and
1yr) Bachelors
7% 9% has high salience of private labels in that as it is
largely unbranded. It sources 35% of its vegetable
Source: bigbasket, Elara Securities Research
requirement — mostly comprising onions and
 Around 9,000 SKU give 90% of business out of total potatoes — from large operators locally
of 25,000 with 96% fill rate

Exhibit 31: 80% of BB HH - between 25 to 50 years old Exhibit 32: 45% of bb HH - families with children
Above 50 Below 25 Family size Joint family Me staying
Age
years years (more than alone
Me +
10% 9% 5 people) 6%
flatmates
24%
8%
Me +
Spouse
36 - 50 17%
years 25-35 years
37% Me +
44%
Spouse
+kid (s)
45%

Exhibit 33: 50% of bb HH with 1 child at least Exhibit 34: 42% of bb HH- working couples
No of children >2 kids Professional status Retired
11% couple Students
4% 5% Working
Bachelor's
home
Working 13%
man &
1 kid
Housewife
50%
36%
2 kids
39%
Working
couple
42%

Source: bigbasket, Elara Securities Research Source: bigbasket, Elara Securities Research

14 Elara Securities (India) Private Limited

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 FMCG

Tata StarQuik
Tata StarQuik is an online grocery store backed by Tata Group. It provides 10,000 grocery, personal care and
household products at a click and get them home delivered in three hours. In 2017, Tata Group had bought out
management team and technology of Gurgaon-based GrocerMax to enter the online segment, now known as Tata
StarQuik.

K Radhakrishnan, Co-founder
K Radhakrishnan has about 35 years of experience with impressive track record in Food
retailing, FMCG, and Distribution and Logistics & Retail Ecommerce Start Up, Management
Consulting. He is the co-founder of Tata StarQuik the omni channel online grocery business
for Tata aligned to the StarBazaar store. He has also been co-founder of other start-ups such
as Grocermax and Freshkins. Prior to venturing into his own start-ups, Mr Radha was
President of Future Freshfoods Ltd ( A JV with Kishore Biyani to grow the Fruits & Vegetables

FMCG
business in Big Bazaar and outside) up until March 2014. In 2006, he had joined Reliance
Retail as a CEO of the Value format retail. Prior to this he was associated with Foodworld
Supermarkets Limited, Amalgam Foods, Unilever promoted Indo Nissin Foods, Parry Agro
Limited, Carritt Moran and Company . He has a post graduation in Econometrics and
Statistics.

 In Mumbai, 6,000 tonnes of vegetable and fruits are

sold in a day vs less than 100 tonnes is sold in
Exhibit 36: 50% of retail business comprises of
modern trade
grocery business
Tata StarQuik business model
Retail
(USD 600bn)  Pin code (serviceable area) had died in India six years
ago as pin codes cover variable area sizes. Tata
StarQuik decides the deliverable area on the basis of
Grocery the distance it can cover from the store to deliver the
(USD 300bn)
product within time

Exhibit 37: Deliverable area should be within six-km

radius
Top 8-10 cities Rest of India
(USD 100bn) (USD 200bn)
6 km
3 km
3 km
Source: Tata StarQuik, Elara Securities Research

 As the number of brands grows, shopping will move

from involvement to non-involvement and whatever Store
is no involvement shopping will go on an online
platform

 Efficiency and profitability of last-mile delivery 6 km

decides if an eCommerce is making money
Source: Tata StarQuik, Elara Securities Research
Why is everyone chasing grocery business?
Exhibit 38: Ticket size decides if flat delivery charge
 Grocery business is different from non-grocery is applicable
business. It is the category which involves minimum Ticket size (INR) Delivery charges (INR)
24x per year buying, which is compulsive and < 500 50
inevitable. The grocery business needs to be >= 500 Free
managed at range, pricing, savings, freshness, Source: Tata StarQuik, Elara Securities Research
temperature, recurrence and customer acquisition
 Currently, it is selling 9,000 products
cost
 It is not losing money

 0.15% is return rate of products

Elara Securities (India) Private Limited 15

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 Elara Securities (India) Private Limited

Disclosures & Confidentiality for non U.S. Investors

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 Elara Securities (India) Private Limited

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The information contained in this note is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although
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Global Markets Research

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 Elara Securities (India) Private Limited

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