INDIAN business and economic scenario looks very buoyant in the last 6 months and is poised to scale greater heights this year. The plastics packaging industry would also get its share of glory and could grow by 15%. The U.S. recovery is strong, China is booming, Japan is starting to grow and Europe is turning around - for the first time in a long time, we’re experiencing synchronized global growth.

After a couple of tough quarters, fast moving consumer goods majors are showing some signs of recovery, at least in volume terms. For the quarter ended September ’03, HLL, P&G, Britannia and Colgate have gained market share on the back of sharp price cuts in key areas.

Good monsoons and the consequent effect on demand have played a major role in the improved performance, say industry players. However, rising raw material prices and the impact of the price reductions are being reflected in the profit margins. So far cost savings, tax benefits and other income have prevented profit margins from falling drastically. Analysts say that companies need to identify new growth categories to sustain growth in the long term.

Senior industry officials say there is a distinct underlying improvement, with good monsoons and a feel good factor helping sales. Hindustan Lever on October 30th recorded a 4.2 per cent growth in sales to Rs 2,467.5 crore for the quarter ended September ’03 against Rs 2,367.5 crore in the previous corresponding period.

While the demand growth in the user segment was pretty robust in the past, it was the excess capacity that ate into margins and hence profitability of packaging companies. As a result of low capacity utilization rate and excessive borrowing to fund capacity additions, a majority of the smaller players have turned sick. Only larger players like Paper Products Ltd have managed to survive the onslaught. This has sucked out some of the supply from the market.

Says Preeti Manerkar, FMCG analyst at HDFC Securities, “(Good) monsoons affect growth (in the FMCG sector) with a lag of three to four quarters and better than expected results by most of the companies have led to the stock-. specific rally in the market.”

“Traditionally, Indian consumers prefer red and white packaging for toothpaste whereas British go for green and white packaging. This is just oneexample of the psychological implications,” — Muneer Muhamed, Marketing Analyst , Mumbai

Performance in the sector in first quarter of 2003-04 indicates that the dominant products, rather than new product introductions, have driven growth. This indicates a clearer focus on present strengths rather than on new segments.

LG Household and Healthcare, a subsidiary of Korean chaebol LG Group, has forayed into the Indian fast-moving consumer goods segment, and is expected to launch 240 products soon.

The demographics of India, with nearly 60% of the urban population having an age of less than 25 years, is also a powerful change-agent. The young and young adults are acting as catalyst of change, bringing in new consumption behaviours. Out of Home (OOH) is an entirely new consuming outlet with significant growth potential. The increasing number of skilled working women (estimated at 15% in urban India) with enhanced spending power have led to a proliferation of convenience products and brands

Says LG India Household & Health Care Ltd Managing Director Vijay R Singh: “The Indian market is diverse, has a rural skew, uses low-end packaging and is price sensitive. Our research has revealed that superior products in the country are priced much higher than the common man’s expectations. We aim at bridging this gap by offering premium products at reasonable prices.”

LG (India) House Hold is initially introducing 30 products under the oral healthcare, hair, skin, body and kids care segments.

Amidst the Boom
The Indian FMCG market is witnessing a boom currently, the scale of which, perhaps, has not been experienced in the recent past. The market is roughly equally split between the organized and the unorganized segments and the organized sector is poised to grow at 7% p.a. to a whopping Rs.103,000 crores by 2007.

According to M.V. Prabhakaran, Head - Packaging Division, Research Centre, Hindustan Lever Limited, Bangalore Greater GDP per capita, higher disposable personal incomes, a great variety of products and services are some of the drivers of this growth.

Indian Consumer Behaviour: Shifting Paradigm
With increased literacy levels and media explosion, today’s consumers are exposed to a whole host of new products. Their expectations have undergone a sea change, moving from purely cost-centric products through value-for-money propositions to higher value offerings.

“Consumers, today are willing to experiment and adapt new product experiences,” says Prabhakaran. They are able to articulate their aspirational needs and seek solutions even by paying a price. Quality and reliability are the new buzzwords even though costs are important.

A lot of impulse buying is happening and this is not restricted to the young and upwardly mobile segment alone.

The face of India is changing, especially in the urban area. There is a big chunk of very rich people with disposable incomes greater than Rs.1 lakh per month. Even though they constitute a small proportion, their absolute number should be seen in perspective with the population of some of the European countries.

The demographics of India, with nearly 60% of the urban population having an age of less than 25 years, is also a powerful change-agent. The young and young adults are acting as catalyst of change, bringing in new consumption behaviours.

Out of Home (OOH) is an entirely new consuming outlet with significant growth potential. The increasing number of skilled working women (estimated at 15% in urban India) with enhanced spending power have led to a proliferation of convenience products and brands.

There is clear evidence that consumerism has truly arrived in India and some of the indices (credit card usage, consumer durable loans etc.) are testimony to the new emerging trends.

Role of Packaging in FMCG
Everyone is familiar with the conventional role of packaging, which is to contain, protect and preserve the product till the consumers consume the same. However, there is a different dimension / more fundamental way of assessing packaging value creation via,

* Contribution to top line growth (i.e. sales generation)
* Advertising the product constantly
* Assist in margin improvement

There are many examples of packaging led innovations, which have discovered new markets or new usage, thus expanding the market potential.

For example, sachet as a packaging vehicle has helped market penetration significantly by tapping low-income consumers very effectively, which otherwise would not have been possible. Packaging, especially plastics packaging, in many instances, have become an integral part of the product itself enabling superior control on delivery / application.

PET Bottles Market
Last year, PET bottle market was adversely affected for about 3-4 months due to detection of pesticides and insecticides in some carbonated drinks, dampening the growth of PET bottles. The growth of PET bottles is expected to be only about 8-10% compared to 15%, generally observed in the past few years. PET bottle demand could reach between 70KT to 75KT.

Absolute safety of drinking water in PET bottles assured even after repeated use. The past several months hoax messages regarding PET bottles are being flashed on the world wide web.

It has been alleged that PET bottles used for soft drinks and mineral water could cause cancer due to breakdown of the bottle material to DEHA (considered carcinogenic). The article claimed that repeatedly washing and rinsing the bottles could cause the plastic to break down and allow a carcinogen to leach into the water that people drink.

"Sachet as a packaging vehicle has helped market penetration significantly by tapping low-income consumers very effectively,” — M. V. Prabhakaran, Head - Packaging Division, Research Centre, Hindustan Lever Limited, Bangalore

This message apparently written by officials of the Queensland Department of Natural Resources and Mines in Australia was on the Internet and widely circulated as email, particularly in Bangkok. The message, which is an apparent hoax, falsely claimed the plastic bottle in question is made of chemical named “Poly Ethylene Terephthalate” (PET), which contains “Di Ethyl Hydroxyl Amine or DEHA, which is considered a carcinogen.

The claim drew a quick response from Australian Bottled Water Institute Inc. and Australian Soft Drinks Association Ltd., which issued a joint statement insisting plastic bottles can be reused without any risk, even though the bottles are intended for single use and for easy recycling afterward.

“Contrary to some misinformation, there is no Di Ethyl Hydroxyl Amine in PET. Also, DEHA, as incorrectly claimed, is not a known acronym for that chemical,” the statement from Australian Bottled Water Institute Inc. and Australian Soft Drink Association Ltd. said. PET bottles are made wholly of polymer Polyethylene Terephthalate, which is completely safe. The term DEHA actually stands Di Ethyl Hexyl Adipate, which is never used in PET.

The statement further said PET bottles are not designed to withstand high-temperature washing, abrasion or scrubbing. However they could be re-used, provided consumers follow hygienic practices. It warned that leaving partly drunk bottles in cars could encourage the growth of bacteria if there were adequate nutrients present in the water, such as bits of food.

Award for the Best FMCG Packaging Design

ITC’s recently launched menswear brand John Players has been awarded the Best Packaging Design In The FMCG Category at the recent Business World - NID Awards for Design Excellence. As acclaimed Finnish product designer, Tapani Hyvonen, a member of the jury says , “I have never seen such innovative packaging for a shirt”. Key factors that have gone into the design of the packaging include: * Using transparency to highlight the width of the product range as well as showcase the high quality of the offering. * Facilitating consumer choice within the retail outlet. Says Mr Atul Chand, General Manager ITC’s Lifestyle Retailing, “The ‘John Players’ range of men’s apparel bears telling testimony to a signature attention to minute detail. It endeavours to deliver unbeatable value to the discerning consumer at competitive prices ranging from Rs 400 to Rs 900. The packaging showcases and highlights the distinct and incremental product value that the brand gives the consumer”.

Emerging Packaging Issue: Chlorine-free Technology
The country’s pulp and paper industry will require an investment of around Rs.6,000 crore over the next two years to switch to a chlorine-free bleaching technology.

In line with the Rio Convention and the Montreal protocol, the Indian paper industry was required to eliminate the use of chlorine in bleaching of paper pulp by 2002. But following a recent dialogue with the ministry for environment and forests, the industry managed to get the deadline deferred to December 2005.

The largest contributor to pollution in paper manufacturing is the pulp bleaching process. The conventional bleaching process uses chlorine gas, which generates carcinogenic pollutants known as dioxins. In the new technology, nascent oxygen replaces chlorine as the bleaching agent.

Of the big players, only ITC has completely switched to the chlorine-free bleaching process. The company has invested Rs 227 crore at its Bhadrachalam plant to adopt the new technology. “The others are in the process of switching over,” a source said.

Many of the user industries too are in the process of switching over to chlorine-free paper. Companies like Amul and Tetrapak, and ice cream manufacturers like Dinshaws and Vadilal, are already using chlorine-free paper for their packaging. “FMCG majors like HLL, P&G and Godrej are also expected to do so this year,” a source said, adding that pharmaceutical firms were among the first to switch to chlorine-free paper.

The largest contributor to pollution in paper manufacturing is the pulp bleaching process. The conventional bleaching process uses chlorine gas, which generates carcinogenic pollutants known as dioxins. In the new technology, nascent oxygen replaces chlorine as the bleaching agent

The annual paperboard requirement of the domestic packaging industry is nine lakh tons, of which ITC produces two lakh tons. The other players, including Ballarpur Industries, West Coast and JK Paper, make about 6.5 lakh tons while the remaining 50,000 tons is imported.

Packaged Salt as an FMCG Item
Tata Chemicals has decided on a shift in its marketing strategy for Tata Salt. It now plans to sell the product, which is a market leader, as a fast moving consumer good (FMCG) rather than a mere commodity.

Tata Salt was relaunched with additional emphasis on the purity factor with its vacuum packing. The brand is believed to be growing at about 10 per cent per year.

It has set up an entirely dedicated team for the purpose, and the new initiative will also include other branded salt products such as the low-end salt ‘Samundar’.

B Sudhakar, head, corporate HR and administration at Tata Chemicals, said: “Tata Chemicals will now be marketing Tata Salt on its own. We will be launching new branded products in the future and therefore, to combat the competition from FMCG players, we will have to take the FMCG route of marketing our products even if we are not an FMCG company.”

The marketing and distribution of Tata Salt was earlier outsourced. The company used to market the product through Vardhaman Chemicals. But this deal was severed in November last year.

Now Tata Chemicals will market the salt on its own, in an effort to increase in volumes by way of sales and retain its majority market share. Their other branded product, Samundar, is being test marketed in Tamil Nadu and is witnessing “growing volumes”.
Having decided to go aggressive on the marketing strategy, the company also plans to induct people with the FMCG background to market products. “Apart from this, the existing marketing team will be given an FMCG orientation,” said Sudhakar.

It has already hired about 20 people in the last four months from an FMCG background in order to go up against other companies selling branded salt. The company also plans to hire another 10 people by June for the same marketing initiative. “We are giving special training programmes for these salespersons,” Sudhakar said. Tata Chemicals has also set up a task force in order to retain its majority share and to increase the sales of Tata Salt.

The test marketing of its low prices brand Samundar is still on.

Aseptic Packaging Duties
Aseptic packaging increases shelf-life and preserves the nutrition of food items. But since it is expensive, most companies do not use it, leading to high wastage.

Leading cooperatives and private food and beverage manufacturers have appealed to the government to bring down customs as well as excise duties on aseptic packaging material.

They have come together under the aegis of The Aseptic Food Processing and Packaging Industry Association of India (AFPPA) and have argued that a lower duty component will not only make the domestic fruit and milk product manufacturing industry price competitive vis-a-vis imports, but will also reduce consumer price, increase volumes, and reduce wastage.

Said D P Tripathy, senior advisor to the association: “So far we have been talking about the potential of the Indian agro industry. We have talked about the wastages that happen every year, and how we should try and bring them down. But unfortunately, there is hardly any effort to improve packaging technology. A reduction in duties on aseptic packaging will mean a reduction of packaging costs, and therefore, a major reduction in wastage and an increase in shelf-life.”
Tripathy said that there has been a reduction in customs duty in the recent budget on aseptic packaging material and spare parts from 30 per cent to 25 per cent.

Leading cooperatives and private food and beverage manufacturers have appealed to the government to bring down customs as well as excise duties on aseptic packaging material.

However, the government did not heed to the industry’s demand of a reduction to 15 per cent. “While this change has been concessionary, it does not reduce the gap between our and our contenders’ competitiveness,” he said.
At present, the total import duty on aseptic food processing and packaging equipment is 50.8 per cent - a major portion of this being countervailing duty (CVD), which is equivalent to the excise duty imposed as a protectionist measure for the local manufacturers.

Tripathy said that since the technology is not manufactured in India - it is only imported- there is no threat to the domestic manufacturing and, hence, there is no need to impose a CVD.

The association said the “very high” excise duty of 16 per cent on aseptic packaging material increases the gap between those using aseptic packaging and those who do not. “Since the final packaged food products do not attract excise duty, the duty paid on aseptic packaging material is not available for CENVAT benefit.

This makes the packaged food product costlier and penalizes safety and hygiene. We have found that if the excise duty is reduced to nil, the total revenue impact will not be more than Rs 6 crore,” said Prakash Chauhan, chairman of Parle Agro, which is a member of the association.

New Packaging for Cadbury Chocolates
Following the controversy over infestation in its chocolates, Cadbury India Ltd unveiled ‘Project Vishwas’, a plan involving distribution and retail channels to ensure the quality of its products.

Cadbury India Limited launched a strengthened, new ‘purity sealed’ packaging for Cadbury Dairy Milk. The new packaging for 13g (Rs.5) is double wrapped for maximum protection. The chocolate is wrapped in aluminum foil and enclosed in a poly flow pack, which is completely sealed on all sides. In the second phase, the larger Cadbury Dairy Milk packs will come in poly-coated aluminum foil, which will be heat-sealed and then wrapped in the branded outer package. Both these steps are a ‘first ever’ in chocolate packaging in India.

“Over the last few months, we have had some cases of infestation due to improper storage conditions. As a company committed to ensuring that our consumers enjoy a pristine bar of chocolate each time, we decided to take steps to reduce dependency on storage conditions to the extent possible,” said Bharat Puri, Managing Director, Cadbury India Limited. “Cadbury will do everything it can to ensure that every bar of chocolate that a consumer buys comes full of goodness and rich taste.”

Commenting on Amitabh Bachchan as brand ambassador for Cadbury chocolates, Puri said, “There is a perfect fit between Amitabh Bachchan and Cadbury chocolates - their timelessness, and the love and trust they both share with the people across India, makes this an ideal partnership’.

The new 13- (Rs.5) Cadbury Dairy Milk packaging is currently available only in Maharashtra and the national roll out will take place over the next three weeks. New packaging for the larger bars of Cadbury Dairy Milk, Fruit & Nut, Crackle, Bournville, Caramello, and Double Deck will be completed in six weeks.