India: A Tiger on the Prowl

Will India’s sizzling economy foster high interest and growth in functional foods and dietary supplements?

By Paul Altaffer &
Grant Washington-Smith

In the March edition of Nutraceuticals World, “From The Corners Of The World” announced that it was dedicating 2007 to the emerging markets of China and India. The first part of this five-part series focused on the emerging consumer market in China. This issue will explore the equally interesting emerging market of India.

Although the Indian economy continues to grow at a blazing rate, many questions remain as to how it will react as consumers of natural products, functional foods and nutraceuticals. This column will explore some of these questions and the direction the Indian market will take. The big question then is whether the Indian economy and its natural products industry will continue to be feisty, like a tiger on the prowl.

India’s Economy Sizzles

At first sight, India’s economy looks much like China’s. Both countries possess some of the largest populations on earth, both are large in size, both have emerging economies and both are growing at sizzling rates. But in some ways, India may offer greater hope for long-term development and prosperity be-cause it has a large, young population that will likely feed a workforce for generations to come. India is also the largest democracy in the world, and an important ally to the West.

In a recent report published by The Economist magazine (“India on Fire”—The Economist, February 1, 2007), India’s economy was hailed for its many achievements and successes, as well as exposed for the risks it faces. India’s economy grew by over 9% in 2006 and over the past four years, it has grown at an average yearly pace of more than 8%. Some economists believe India’s economy could grow by more than 10% in 2007—even the government has set an ambitious target of 9% growth for the next five years. Business is great and there is a strong sense of optimism in the air.

Foreign investors are moving money into India almost as quickly as in China, rapidly making the Indian stock market one of the most expensive in the world. Meanwhile, Indian corporations are on an acquisition spree, buying companies all over the globe. Credit is readily available, and interest rates are fairly low. There is also an emerging middle class that continues to go out and spend a lot of money.

Watch for Speed Bumps

Many economists believe that India’s economy is at risk of overheating. And the signs are all over the place, from the stock market where asset prices are considered high, to the housing market where house prices in some areas have doubled over the past two years, to escalating wholesale and consumer prices. The inflationary trend is worrisome to many, especially if the Reserve Bank of India (RBI) is incapable of controlling this trend.

What is truly worrisome, though, is not just that the economy may be overheating, but India has some fundamental infrastructural issues that need to be addressed if the country is to fulfill its long-term potential. India has poor roads, poor power generation and distribution, poor labor laws, and poor public services. On top of that, India’s population is very poor and undereducated. India will need to invest heavily in its infrastructure, while maintaining its growing economy in order to keep the population employed and productivity growing.

Consumer Optimism

Risk of an overheating economy not-withstanding, consumers in India, driven by a growing middle class, feel a sense of optimism and pride over their booming economy. Manoj Saraiya, RPh, president, Invetek Inc., Tustin, CA, be-lieves consumer confidence is definitely on the rise, in addition to the standard of living. “As consumers generate greater purchasing power, they will be attracted to a larger basket of products, including products like functional foods and specialty products,” she said.

Consumer sales of functional foods, nutraceuticals (including OTC) and cosmetics in India are growing at or above the rate of growth of the economy. Data from Euromonitor International places India at a rate of growth on par with Indonesia and China (see Table 1 on page 36). With the healthy growth rates it has been producing, India seemingly offers a great deal of promise to product developers and marketers. However, not all that glitters is gold as the saying goes. Further analysis into each of the market categories reveals opportunities as well as barriers.

The Reality of Functional Foods

According to Umesh Madhavan, senior research analyst, Euromonitor International, the functional food and beverage market, has “yet to catch the fancy of Indians.” Price considerations and a lack of interest or education make most functional and fortified foods unavailable for much of the population. Some mature product areas like fortified milk powders are the exception to the rule. However, health and wellness remain a relatively low priority as a large proportion of the population remains below the poverty line and in many cases (especially in the case of children) malnourished.

The good news is functional foods offer a great deal of promise to young, urban and upwardly mobile sectors of society. Euromonitor’s Mr. Madhavan explained, “I believe that for any functional food product to succeed in India, the product has to appeal on three fronts—apparent benefit, price and taste. Value conscious Indian consumers must be educated about the functional benefits of the product and convinced that the premium paid is directly related to the resulting health benefit.” He added, “One such product is functional gum, which witnessed 40% value growth in 2006. The functional benefit of xylitol for oral care was clearly communicated.” Of course, it helps that functional gums taste good and are priced in such a way that many people can afford it.

Another area of explosive growth in functional foods is in energy drinks, where a product like Red Bull is expected to generate retail volume growth of almost 50% per year over the next five years. While this growth rate—the fastest in Asia—is impressive, it is important to note that most Indians will still not be able to consume these products, and will not be able to for the foreseeable future. The potential in India is certainly centered on the emerging middle class urban consumer.

OTC Products & Dietary Supplements

The OTC products industry is a relatively mature one in India, yet it continues to grow along with the rest of the economy and the growth prospect for the next five years is considered healthy (see Table 1). Sales in the category for 2006 were estimated to be a little over $1.4 billion, with expected growth rates of nearly 10% over the next five years. Half of the sales in this sector can be attributed to analgesics, cough, cold and allergy, as well as digestive remedies. These are mature markets with well-established product lines and strong brands. Some of those sales are also a result of under-the-counter (UTC) prescription brands.

Vitamins and dietary supplements are responsible for the next largest slice of the pie, with a little over $453 million in sales and an expected growth rate of nearly 10%. Although it is not entirely expressed in these forecasts, this sector holds promise with the introduction of niche products that may appeal to the urban consumers. Manoj Saraiya points out that the Indian OTC and dietary supplement markets are fairly well established and will continue to grow be-tween 9% and 11% per year for the foreseeable future. “The exciting opportunities in this market, though, are associated with niche products that serve the growing middle class and the problems associated with a Western life-style,” he said. “Product areas with great growth potential include weight loss products, cardio-protective products like LDL- and triglyceride-lowering supplements, as well as energy and stress products.”

According to Euromonitor, the largest company in India by market share is GlaxoSmithKline. Even though its share of OTC and healthcare products suffered a slight slip recently, it still maintains the most valuable portfolio of brands and products. After GlaxoSmithKline, the list of the largest companies includes Indian herbal company Dabur India Ltd, Pfizer, Procter & Gamble and Amway India.

In this fold are herbal and traditional remedies, homeopathic and Ayurvedic products, which are often dispensed by prescription or through a doctor’s office. India has an ancient and well-established healing arts tradition based on Ayurveda that is available to all sectors of society. Sales figures and growth in these areas are difficult to forecast.

And the Winner is…Color Cosmetics

The cosmetics segment is clearly the winner of the growth game, with sales soaring an unbelievable 35% in 2005. Over the next five years, growth percentages in the range of 29% are expected. Growth is attributed to shifts in consumer attitudes, as well as growth in the fashion, television and movie industries. Women are increasingly concerned with fashion, style and looks, with the big winners being the cosmetic companies.

Lip products are responsible for the majority of the sales, with a 58% share, followed by nail, facial and eye make-up products. Lipstick appeals to every generation, which is why it continues to drive the category.

What this All Means

India seems to offer some paradoxes to prospective product developers and marketers. On one hand, the economy is growing at a sizzling rate; there is an emerging affluence and consumer markets from urban centers; and there is a young population that is likely to become more educated and affluent within the next 20 years. For most product developers, this would represent a major green light and an invitation to invest. That is until one examines the other side of India where poverty is rampant, infrastructure is still poor and consumers (other than the urban wealthy) are either too poor or too unsophisticated to purchase Western products. How is it that this country can experience poverty and malnutrition in many regions, but at the same time be preoccupied with Western lifestyle problems like obesity and cardiovascular disease?

Euromonitor’s Umesh Madhavan sums it up nicely, “Health and wellness remains a minor issue on the minds of most Indians and while I see that there is a steady shift among urban consumers to choose and eat healthy, this has yet to translate into a substantial demand for fortified/functional foods. Nonetheless, I do expect to see lots of market activity and exciting times ahead for the discerning health conscious consumer.”NWIndia: A Tiger on the Prowl