Bakery Industry in India – A Category Review

Rajat K. Baisya

India is the second largest producer of wheat in the world.

As per the figures of Agriculture Ministry Government of India, India
produced about 72 million tonnes of wheat in 2003-04. It is 12 per
cent of the world production. Most of the wheat produced in the
country is suitable for production of bread and bakery products, which
is soft to medium hard with medium protein content. The major wheat
producing states are Punjab, Haryana, Uttar Pradesh and Rajasthan.
Durhum or hard wheat with high protein content and high gluten content
is typically grown in central and western India. The quantity of
durhum wheat is small and is estimated to be about 2.5 million tonnes.
Although acreage under wheat cultivation is steadily increasing, the
productivity has been more or less stagnating at around 2.4 to 2.7
tonnes per hectare. In 2003-04 seventy two million tonnes of wheat was
produced from 26.62 million hectares of the farmland giving a yield of
2.7 tonnes per hectare. In India there are about 900 Roller flour
mills milling about 12.5 million tonnes of wheat utilizing less than
50 per cent of their installed capacity. As per the Union Ministry of
Food Processing Industries estimate there are about 400000 Chakkis
milling 42.5 million tonnes of wheat. The Chakki milled wheat flour
normally goes for direct household consumption and the atta (wheat
flour) and maida produced in organized roller flour mills normally are
supplied to the industry. Roller flourmills also produce other
products including semolina (suji) and other by-products. With low
capacity utilization the roller flourmills are not really doing well.
Government through Public Distribution Scheme (PDS) distributes and
sells wheat all over and Food Corporation of India ( FCI) provides the
major storage and infrastructure facilities for this purpose. FCI
storage system is age old and inadequate and many studies indicated
that there is a significant loss and pilferage taking place from FCI
run storage godowns. The selling price of wheat by Government through
PDS is quite low to cover Above Poverty Line (APL), Below Poverty Line
(BPL) and Poorest –of- the Poor (POP) consumers. These prices are now
fixed at INR 6100 per tonnes for APL, INR 4150 for BPL and INR 2000
per tonne for the POP consumers. Needless to say that significant
quantity of the wheat grains distributed through PDS comes back to
Chakkis and roller flour mills through parallel market linkages
established traditionally by the middlemen. The reason being the
market price is much higher. Even the cost of procurement of wheat
including the holding cost reported to be around INR 9250 per tonne.
It is clear therefore that large part of the subsidy is wasted through
this parallel channel as well through the wastage and inefficiency of

1 / 5
Phoca PDF
the system arising out of sub-optimal post harvest handling and
storage.

Bakery Products

According to the industry estimates the market size of bread, biscuit

and other wheat based products are as given in Table 1.

According to the estimates, over 65 per cent of the total wheat

produced in the country is utilized for atta production which in turn
is consumed for the preparation of Chapatis.

Region-wise consumption of branded atta is said to be as given in

Table 2.

Table 2: Region-wise consumption of branded atta

Region                        Consumption

North 47 %
East 13 %
West 21 %
South 19 %
Bread

The total bread production in the country is estimated to be 3.75

million tonnes annually growing at a rate of about 6 per cent. The
organized sector is said to be growing a little higher rate of 8 per
cent. In 1977 Government had reserved bread industry for the small
scale. However. Britannia Industries Ltd (BIL) in private sector as
well as Modern Food Industries Ltd., a Public Sector Undertaking were
permitted to produce bread as per the installed capacity existed at
that point of time. In addition to these two large players there were
about 25 medium scale and 1800 small scale manufacturers which
together accounted for 45 per cent of the total production of bread in
the country. In the unorganized sector it is said that there are about
75000 bread manufacturers spread all over including some of those
operating from even residential premises. South India consumes 32
percent of the total bread produced in the country followed by north
which consumes about 27 per cent, west 23 per cent and east 18 per
cent.

Increasingly, bread is finding popularity as item consumed in

breakfast in place of traditional chapptis. Bread production has thus
been on the rise. The manufacturers also introduced many bread
variants. Health conscious people now consume brown bread instead of

2 / 5
Phoca PDF
white bread. Brown bread is all most 10 per cent of the total bread
market. Milk bread is about 85 per cent, brown 10 per cent, fruit
bread 3 per cent and balance 2 per cent is other specialty bread as
per industry estimates. Earlier we had only whole bread but during
last decade mostly sliced bread is being sold. One gets whole bread
only in small towns produced in traditional ovens. The bakeries in
India normally produce bread as well as cookies for the local market.
The technology absorption in Indian bakeries therefore is still at
various levels. Some of the hotels in India produce excellent quality
bread and the regional players increasingly dominate other bakery
products. Many local and regional players have been able to create
success stories and therefore dominance of big players like Britannia
is gradually reducing. In fact Britannia wanted to get out of the
bread segment because it is not very profitable. In Delhi we can see
that Harvest Gold brand is quite popular and they are more visible
than other brands.

Biscuits

The size of the biscuit industry is estimated to be about 1.95 million

tonnes valued at INR 68.6 billion of which organized sector produces
about 57 per cent of branded biscuits in volume terms and 64 per cent
in value terms. In biscuit category we have two very large players
Parle and Britannia. Besides, there are about 50 medium players and
about 2500 small scale units. In the unorganized sectors we have over
30000 small, very small and tiny units spread all over the country.
Our bakery industry thus is quite big in that sense. Biscuit industry
was also reserved for small scale earlier. It was de-reserved in 1997-
98. Since then the industry is growing at a rate of over 10 per cent.
Post de-reservation many local and regional players have started
producing for Parles or Britannia as franchised units. These two large
players also shifted the production to identified small biscuit units
to reduce the cost. Britannia in due course of time closed down their
Mumbai unit and has created a new unit in Uttaranchal to benefit from
tax concession and low cost of labour. Britannia also acquired Kwality
Biscuit couple of years ago.

Glucose and Marie are two varieties of biscuits which represent the
largest segments. Table 3 gives the contribution of various biscuit
segments as per the industry estimates.

Table 3: Various product segments in biscuit

Product segment             Percent

Glucose 44
Marie 13
Cream 10

3 / 5
Phoca PDF
Cracker 13
Milk 12

Others 8

Glucose biscuit, which is the bulk of the biscuit production really

delivers the volume and therefore takes care of large part of fixed
overheads. Glucose biscuit is actually low margin biscuits. Businesses
are therefore constantly trying to create new brands of speciality
biscuits that could give them higher margin of profit. Some of the
better known and successful brands in the market are thus Krack Jack,
Good –day, Pure Magic, Little Hearts.

Per capita consumption of biscuit in India is only 1.9 kg, compared to

about 10 kgs in USA and west European countries and 4.2 kgs in South
East Asian countries. The reason why glucose biscuit sells the maximum
is due to the fact that it is the low price mass consumption biscuit.
This industry can grow at healthy rate if the price is brought down.
It has been observed that whenever the excise duty is reduced the
category was growing at much higher rate. But the reality is that the
industry suffers from multiple taxes levied on the category. The gross
realization after taking care of the basic input cost and taxes and
trade margins as prevailing will not be more than 25 %. The
profitability of this category is thus low. The major marketing
initiatives taken on the category has been by two leading players –
Parle and Britannia.

MNCs like Smith Kline Beechem (SKB) tried to create biscuit brand
under Horlicks. Although this brand of biscuit still exists but the
volume is low. They still produce the product through subcontract unit
and promotion of the brand is a low-key affair. SaraLee entered this
category and incurred huge loss for three years and exited from the
category all together. Even Kellog introduced a few specialty biscuits
in the market and made considerable efforts to market those brands
unsuccessfully. Some of the local industries are really giving a
strong fight to big players like Britannia and Parle taking advantage
of low cost of production. There are therefore instances of regional
success stories like Priya Biscuits, Bakeman etc.

Cake and Pastries

Although big players like Britannia produces cake but in this category
most of the players are in small and medium segment. This category is
small and numerous local producers have created success stories. The
name that has created a name is Monginis. They have their own retail
stores in all metro cities. In addition many other local cake and
pastry shops created good business proposition locally.

4 / 5
Phoca PDF
There are many bakery ingredients manufacturers who now sell even
ready mixes to small bakers to help them producing good bread. These
companies are also helping the small bakeries to improve the
technology. In India we get bakery equipments and machineries
suppliers catering to the needs of small and medium size plants.

The industry is not very attractive and growth depends on price.

Margin is low and large players are finding it difficult to establish
new brands. The only other large player entered this category is ITC.
Their brand Sun Feast Marie Light is a success. But ITC has been
spending a lot to create yet another brand which others cannot repeat.

An updated compilation of selected articles, already published in this

series, covering all sectors of industry under the title “Changing
Face of Processed Food Industry in India” is being published by Ane
Books Publisher. You can order your copy to us. Price Rs. 590.00 –
Editor.

5 / 5
Phoca PDF