India marketing war? Pepsico - ITC focus on healthier packaged snacks

As growth slows down and intense competition emerges from regional brands in potato chips, PepsiCo and ITC are shifting their focus more towards newer and healthier forms of packaged snacks, the market for which is growing at twice the speed.

While market leader PepsiCo wants to expand its Kurkure portfolio and add more premium offerings, ITC plans to launch newer variants including multigrain and regional flavours under its Bingo brand to gain share, laying the pitch for a fresh marketing war between the US giant and the Kolkata-based rival.

For ITC, this latest thrust on newer forms of packaged snacks, also called finger snacks, comes after it gained more than 7% market share in 2014 in the category by launching as many as 18 flavours. It expanded manufacturing to five locations from two earlier, widened distribution and undertook a revamp in packaging.

ITC's president for FMCG businesses, Sanjiv Puri, said the company has cracked the formula in finger snacks by introducing innovative formats based on multi grains, pulses and "a distinctly better taste". Bingo has become its umbrella brand for snacks, which has also been extended into newer forms such as 'halwai-wala type hot chips' in the South. A senior industry executive said PepsiCo will extend Kurkure into pricier snacks segment which are currently under development to ensure there is no slippage of market share and growth rate. It's a strategy which the company will adopt even for Lay's potato chips, as in its recent launch of Lay's Maxx range which is priced at Rs 30 per pack.

PepsiCo is seeking to create new categories to differentiate itself from the rest. "PepsiCo India pioneered the creation of the organised snacks market in India and we are a clear category leader. As with other categories, when the market reaches a certain size, other players enter and use low prices to try and gain share. However, we will continue to focus on value share by creating new demand spaces and hence are pursuing a premiumisation strategy," a Pepsi-Co India spokesman said, refusing to reveal further details.

While the packaged potato chips market in India is growing at 10%, the growth is 20% in finger snacks. Both markets are valued at Rs 3,000 crore each. However, the competition is much more in chips where domestic players like Haldirams, Balaji Wafers, Prakash Snacks and MTR Foods too are expanding their presence.

As per industry estimates, PepsiCo is still far ahead in overall packaged snacks segment with more than a 50% share, compared with ITC's 16%. This is after ITC gained share in finger snacks where it now enjoys a 27% share compared with PepsiCo's more than 46%. In potato chips, PepsiCo has 60% and ITC, 8%. ITC's food business divisional chief executive, C Dar, said while potato chips as a segment has become commoditised, the scope of innovation in finger snacks is much more and hence the ability to move up the value chain.

A senior industry executive said defocusing on potato chips will help PepsiCo and ITC overcome the volatility and severe shortage of chips-grade potatoes in India. There is also price fluctuation in potatoes, which takes a toll on margins. Bingo has now become the fastest growing brand for ITC in the FMCG business with a brand turnover of Rs 1,200 crore. PepsiCo's Lay's and Kurkure are worth more than Rs 1,000 crore each.