Why are Reliance, Adani and Tatas excited about the business of staples?

Madhab Mohanto runs a grocery store in the mining town of Keonjhar in Odisha. It's the beginning of the month and there is a beeline of customers flocking his store to top up their grocery for the month. So, what has been the biggest change in the shopping behaviour of his customers in the past few years? “All my customers ever since Covid-19 want to buy packaged food, including dal, rice and atta,” says Mohanto, as he along with his assistant vacuum seal a variety of staples in various pack sizes. Mohanto charges them ₹2 extra for the packaging and bulk of them are happy to pay the premium.

Does this mean the average Indians are more upwardly mobile? Not really. The inflation and the price hikes in FMCG products thereof, has taken a toll on mass consumption, consumers are either downgrading or buying less. However, what has changed is the mindset of not compromising on health and wellness, hence, the preference for packaged staples. Back in the boardrooms of corporate India, the heads of businesses are seeing a tremendous opportunity in the business of staples.

The likes of ITC and Tata Consumer Products were the first movers, but they cater mostly to the premium segment. The game for branded staples today exists in the hinterlands, among the masses and this explains Reliance Industries and Adani Wilmar’s interest in branded staples. Reliance has recently announced the launch of its brand ‘Independence’ in Gujarat under which it would dabble into staples, processed food and other essentials that it would eventually launch in the rest of the country. Adani Wilmar which is the largest manufacturer of edible oil in India, is now looking at making a success story out of branded staples.

And, why not? Though consumers are familiar with atta brands such as Aashirvaad or Pilsbury, yet only 11% of the atta sold is branded. Just 5% of rice is branded, while 95% of sugar and 92% of pulses are sold loose. An average Indian consumer consumes 17 litres of edible oil per year, rice consumption is larger, around 55kgs per head, wheat is 60 kgs per head, sugar is 24 kgs and pulses at 22 kgs per head. Anghsu Mallick, MD & CEO, Adani Wilmar, believes that with GDP growth expected to be stable at 7-8% for the next few years, there is no reason why Indians won’t buy and consume healthily. The intent clearly is to fight the local brands at their price, but with better quality. “We always think of how to supply the wheat flour cheaply, where can I buy wheat cheap, where should I put my factory so that I am nearer to the consumer. These are the ways we can save, not by adding cost. When I charge more I am increasing my price as against the local price.”

“Small, regional players will lose out in favour of Adani, Reliance and Tata in these commoditised parts of FMCG,” says Abneesh Roy, Vice-President, Edelweiss. Rolling out a nationwide staples brand would need ability to play with scale and volumes and this is what the likes of Adani and Reliance are particularly good at.

“We only talk of truckloads and vessel loads, we don’t talk kilos because we have grown with an understanding that volume is what we can play well. I sell 300,000 tonnes (of edible oil) a month, versus someone selling 30,000 tonnes,” points out Mallick of Adani Wilmar. Also, to get efficiencies of scale these biggies prefer to be present in several varieties of staples and not just certain categories.

Mallick explains why it makes sense to be in multiple categories. “If you were to sell only atta, it’s not cheap. But when the same salesman sells sugar, rice and dal, also your cost per tonne reduces drastically. If your cost per tonne reduces, you can be cheaper than competition. Further, when your retailer and distributor are the same, the distributor’s salesman is also the same. So, the salesman cost is divided and the cost of distribution and cost of transport reduces. So, when all these costs come down, you pass it on to your customer. She gets better quality products at a better price. That’s the rule of the game.”

Playing in multiple categories of scale also generates efficiency at sourcing. “The same buyer who is buying wheat between March and July, can buy soyabean in September. Wherever there is soyabean, there is invariably wheat. Similarly, buyers who are buying paddy can also buy wheat. If you are only in soyabean, there is no work for buyers for six months. In our company they are busy for 12 months. This reduces my cost of operations,” Mallick further explains.

In the game of scale, Roy of Edelweiss sees an interesting battle brewing between Reliance, Adani Wilmar and the Tatas. The Tata Group has Sampann at the premium end, and its online grocery business, Big Basket, is also building a portfolio of staples. Last but not the least is ITC. Though it is currently only in atta, with its formidable network of six million farmers under e-Choupal, nothing is going to stop ITC from expanding its staples portfolio.