Presentation on International Development in Food Sector by R N Marwah & Co. LLP. For more details regarding the PPT or our services visit www.rnm.in

1. INTERNATIONAL
DEVELOPMENTS
Masterclass on Food Sector
July 19, 2019
By CA Raghu Marwah
R.N. Marwah & Co. LLP

2. CONTENTS
Overview of Food Sector
Major Players
Global Trends
Regulations & Compliance
M&A Story

3. OVERVIEW
OF FOOD
SECTOR
The food and beverage products industry
comprise establishments engaged in
manufacturing beverages, food, pet food
and tobacco products. The global food and
beverages market was estimated to be
over $5.8 Trillion.
If current trends continue, by 2050, caloric
demand will increase by 70 percent, and
crop demand for human consumption and
animal feed will increase by at least 100
percent. Meeting this demand won’t be easy:
for example, 40 percent of water demand in
2030 is unlikely to be met, and more than
20 percent of arable land is already
degraded
Sensing an opportunity, strategic and
financial investors are racing to capture
value from techno- logical innovation and
discontinuities in food and agriculture.

4. INDIAN FOOD SECTOR OVERVIEW
The Indian food and grocery market is the world’s sixth largest, with
retail contributing 70 per cent of the sales.
The Indian food processing industry accounts for 32 per cent of the
country’s total food market, one of the largest industries in India and
is ranked fifth in terms of production, consumption, export and
expected growth.
It contributes around 8.80 and 8.39 per cent of Gross Value Added
(GVA) in Manufacturing and Agriculture respectively, 13 per cent of
India’s exports and six per cent of total industrial investment.
The Indian gourmet food market is currently valued at US$ 1.3 billion
and is growing at a Compound Annual Growth Rate (CAGR) of 20 per
cent

5. MAJOR PLAYERS
Top ten global food retailers reportedly control an
astonishing 24 per cent of market share in global food
sales

6. GLOBAL PLAYERS
It is possible to identify four broad types of companies that are
strongly involved in food production, processing and distribution.
These are:
(i) large food retailers or supermarkets (for example, Wal-Mart,
Carrefour, Tesco, Metro);
(ii) large food-processing companies (such as Nestlé, Unilever,
Danone, Sysco);
(iii) large fast-food chains(such as McDonald’s, KFC, Starbucks,
Subway);and
(iv) other non-food firms (such as Benetton) and private equity firms
(such as Texas Pacific, Apax) operating fast-food and/or food-
processing operations.
Cargill, Nestlé, PepsiCo, Unilever, ADM, Sysco, Compass, Tesco and
Mondelez

7. DRIVERS FOR GROWTH IN INDIA
Rising income levels and demographics
Growing use of plastic money and easy availability of credit
Internet penetration and use of technology
Growing female working population
Nestle India, Britannia, GSK Con Health, Varun Beverages, ITC,
Parle, Mondelez India, LT Foods, Venkys, KRBL, MTR

8. RESTAURANT PLAYERS
Fast food restaurants, along with fast casual restaurants, make up a
segment of the restaurant industry know as Quick Service Restaurants
(QSR). This segment accounts for more than 50% of sales in the entire
restaurant sector.
Segment Market Share
Hamburger-focused
restaurants
30%+
Pizza parlours 15%
Sandwich shops 12%
Chicken restaurants 8%
Mexican restaurants 7%
QSR Sales in USA - Top Five Segments by Market Share
Chipotle, Shake
Shack, Chick fil-
A, Café Delhi
Heights

9. RESTAURANTS IN INDIA
Market size of the Indian restaurants and food services industry
stands at Rs 3.7 trillion (US$ 54 billion) as of 2018 registering a y-o-
y growth of about 10% and a CAGR growth of 8.4% between 2013 and
2018
CARE Ratings expects the restaurant and food service industry to
register a growth of about 10.4% CAGR for the next 5 years between
2018 and 2022 to reach Rs 5.5 trillion (US$ 80 billion) by 2022.
Wikipedia lists 24 Indian and 27 Foreign Fast Food chains and 9
Casual Dining chains operational in India
The Government of India allowed 100% FDI in single brand retail
under the government approval route and relaxed the 30% sourcing
of products clause (for FDI above 51%), proactively contributing to the
growth of the restaurant Industry in the country.
Domino’s, Pizza Hut, KFC, McDonalds, Café Coffee Day,
Subway, Starbucks

10. GI’S IN
HORTICULTUR
E & FOOD
A GI tag essentially works like
a trademark or intellectual
property right in law, wherein
a product belongs exclusively
to a particular territory, and “a
given quality, reputation, or
other characteristic of the
good is attributable to its
geographic origin”
The Geographical Indications
of Goods (registration and
Protection), Act 1999 came
into force on September 15,
2003 and Geographical
Indications Registry with All
India jurisdiction has been set
up in Chennai
Darjeeling Tea was the first Indian GI
registered

11. GLOBAL
TRENDS
Packaging trends-
Connected packaging (i.e. RFID, QR, NFC)
100% recyclable material
E-commerce packaging
Plastic Free
Food & Drink Trends-
Sustainability- transparent provenance
information, reduced waste, reduced carbon
footprint, environmentally friendly
packaging, honest advertising, animal
welfare
Wellness and healthy ageing

12. CONCEPTS
PHOTO BY MICHAEL SHADE AT EN.WIKIPEDIA / PUBLIC DOMAIN
53% of Chinese parents
of child(ren) aged 4-12
would buy children’s
food/drinks if they
were good for
intellectual
development.
Beauty Sweeties contain
coenzyme Q10, aloe
vera and biotin,
benefitting heart health
and is said to have
anti-fatigue effects

13. WHAT’S NEXT
Food and drink manufacturers can look to the beauty and personal
care industry for inspiration for healthy ageing product development
that is centred around positive language across life stages and age
demographics, rejects terms like ‘anti-ageing’ for its negative
connotations, and addresses longevity-related health concerns.
With more consumers taking an active interest in their long-term
health, expect to see more ‘nootropics’, a broad group of
supplements like L-theanine, B-vitamins, choline and omega-3s, that
claim to enhance brain power, focus, alertness and general wellbeing.
As consumers seek food and drink products that reduce
inflammation, more products will feature ginger, turmeric, green tea
extract and medicinal mushrooms in 2019, supporting diets such as
the MIND diet and Whole 30. The Mediterranean diet and its focus on
fruit, vegetables, fish and olive oil also will increasingly appeal to
consumers who are concerned about brain health.

14. UPGRADE OF
CONVENIENCE FOOD
23%
of US consumers would
trust artificial
intelligence to plan
their meals or purchase
their groceries.

15. SWADESHI FOOD PROCESSING
GIANT?
Farm Produce
Food Processed during the year in India
(Quantity in MT)
Food Processed during the year By
Patanjali (Quantity in MT)
Share of Patanjali in Food Processing ( % )
Present:
Fruits 1,09,00,000 11,56,000 10.61
Spices 25,20,000 10,104 0.40
Vegetables 72,90,000 4,45,400 6.11
Pulses & Rice 2,98,60,000 92,772 0.31
Wheat 1,94,50,000 2,67,518 1.34
Future:
Fruits 1,09,00,000 32,81,300 30.10
Spices 25,20,000 52,800 2.09
Vegetables 72,90,000 15,10,000 20.71
Pulses & Rice 2,98,60,000 30,25,200 10.13
Wheat 1,94,50,000 30,75,700 15.81
Glimpse of Patanjali’s Contribution to Food Processing :

16. POSITIVE LINING TO US-CHINA
TRADE WARS?
In July of 2018, the Trump administration implemented a 25% tariff on 818 categories of imported goods
from China.
China then retaliated with its own 25% tariffs on 659 US products including soybeans, corn, and pork.
Soyabean- India might emerge as a potential location for greater import of soybean by China. Although this
product does not have an exportable surplus in India yet, Indian industry players anticipate exports of US$100
million (Rs 6.85 billion) worth of soybean meal and US$50 million (Rs 3.4 billion) worth of groundnut to
China
Sugar- India produces a surplus stock of almost eight million tons of sugar. Indian producers are keen to gain
export access to a large market like China. China is considering increasing sugar imports from India by
almost 1.3 million tons, creating a significant advantage for Indian sugar producers in the Chinese market.
Rice- China is the largest producer and importer of rice globally, while India is the highest exporter. A
partnership between the two countries will be beneficial for both, and help reduce the ballooning trade deficit
between them. China’s rice imports, worth US$1.8 billion (Rs 123 billion) in 2017, see negligible contributions
from India and the US
Relaxation of quality barriers by China for rice and fish oil exports from India points to the increasing leverage
it has obtained with China in agricultural exports.
Under the Asia Pacific Trade Agreement (APTA) India can position itself aggressively in sectors such
as pharmaceuticals, software technology services, and agricultural products – to fill in the trade gap left by
the US in the Chinese market.
The factor which limits the extent to which countries can benefit from the trade tensions is infrastructure~
Moody’s

17. HYDROPONIC FARMING
Method of growing plants
without soil using mineral
nutrients in the water
solvent
Plants commonly grown
hydroponically includes
tomatoes, peppers,
cucumbers, lettuces and
marijuana
The indoor farming market
is growing and is projected
to increase its total global
market value from $23.75
billion (2016) to $40.25
billion by 2022.
Recent examples include:
AeroFarms who recently
raised $100m in its latest
funding round led by Ingka
Group (the parent company
of Ikea); online
supermarket giant Ocado
announcing a £17m
investment in the sector

18. REGULATIO
NS &
COMPLIAN
CE
Major challenges on Indian regulations and
Compliances-
Ignorance of the regulations under the
Food Safety and Standards Act, 2006 (FSSA)
Differences between FSSA and global
standards like Codex
US Food Safety Modernization Act (FSMA)
Sourcing issues (enhanced transparency
requirements)
Greater Alignment between compliance and
operations

19. INDIAN REGULATIONS
Food Safety and Standards Act, 2006
("FSSA")
 Food Safety and Standards (Licensing and
Registration of Food Businesses) Regulations,
2011
 Food Safety and Standards (Packaging and
Labelling) Regulations, 2011
 Food Safety and Standards (Food Products
Standards and Food Additives) Regulations,
2011
 Food Safety and Standards (Prohibition and
Restrictions on Sales) Regulations, 2011
 Food Safety and Standards (Contaminants,
Toxins and Residues) Regulations, 2011
 Food Safety and Standards (Laboratory and
Sample Analysis) Regulations, 2011
The Indian Penal Code, 1860 (Section
272 -Adulteration of food or drink
intended for sale)
Advertising Standards Council of India
(ASCI)
Cable Television Networks Rules, 1994
(Programme and Advertisement Code)
Legal Metrology Act, 2009
Legal Metrology (Packaged
Commodities) Rules, 2011
Export (Quality Control and Inspection)
Amendment Act, 1984
Environment Protection Act, 1986
The Bureau of Indian Standards (BIS)

20. RESTAURANT REGULATIONS
Voluntary Registration with The
Hotel And Restaurant Approval
And Classification Committee
(HRACC), Ministry of Tourism,
Govt. of India
FSSAI License
Liquor License
Health/ Trade License
Eating House License
Shop & Establishment License
Fire Safety License
Lift Clearance
Music License
Certificate of Environmental
Clearance
Signage License

21. RESTAURANT REGULATIONS
Pre GST Regime Post GST Regime
Central Taxes State Taxes Central Taxes
State
Taxes
Restaurant (without air
conditioning)
--
2.5%^
2.5%^
Restaurant (with air
conditioning)
15% on service 12.5% of
food bill component^^
20.0% for
alcohol bill
2.5%^
2.5%^
A/c restaurant in 5 star or
above rated hotel
15% on service 12.5% for
food bill component^^
20.0% for
alcohol bill
9.0%^^
9.0%^^
GST rates (applicable from July 1, 2017)
Note: ^ With no input tax credit ^^ with input tax credit
•- Liquor however continues to attract state levies like VAT as its kept outside of GST regime
•- Restaurants inside Hotels will also levy 5% GST, except for starred hotels with tariffs over Rs 7,500
Source: CBEC

22. INDIAN REGULATIONS: SURPRISES
GALORE
Delhi Excise Department told pubs and restaurants serving alcohol
not to play recorded music as per earlier May 16, 2018 circular.
The Maharashtra government had brought into effect a judicial
amendment to cigarettes and other Tobacco Products (Prohibition)
Act (COTPA) of 2003 to ban hookah parlors
In November, the Income Tax department asked its officers to verify
as part of their regular assessments of restaurants and hotels if there
is a total lack of disclosure of the Service Charge collected, and the
details of its disbursal to the employees.
The government of Karnataka directed bars, pubs, restaurants, and
hotels to have only standing rooms for smoking. Chairs, tables,
ashtrays, matchboxes, and lighters should not be allowed, said a
circular issued by the Directorate of Municipal Administration.

23. M&A
Focus for Food M&A is digital, analytics, e-commerce
and supply chain sectors

24. 2018 BIG DEALS
Coca-Cola's acquisition of U.K. coffeehouse purveyor Costa Coffee for
$5.1 billion
PepsiCo’s $3.2 billion buy of SodaStream,
Walmart’s $16 billion e-commerce addition of Flipkart; and
Nestlé $7.15 billion deal with Starbucks to sell the coffee chain's
coffee and tea in grocery stores and other outlets

25. GLOBAL DEALS: NORTH AMERICA
Public Company Trading Multiples (As per Duff & Phelps Winter 2019 Report)
▪ Enterprise value to LTM EBITDA multiples for Food and Beverage companies across many food
segments have continued to increase as compared to median multiples of the preceding five years to
13.5X as of December 31, 2018.
▪ As of December 31, 2018, companies in the Better-For-You and Agricultural Products segments
commanded the highest median EBITDA multiples, driven by the growing preference for healthy
lifestyle choices and rising disposable incomes.
▪ Better-For-You products continue to benefit from Millennial’s and Generation Z’s focus on health,
as they continue to comprise a growing portion of the overall demand, with median multiples
increasing to 20.2x as of December 31, 2018, a significant premium over the other food and beverage
categories.
▪ Key food trends continue to support valuations for other subsectors — for example, the
Confectionery/Snacks and Ingredients markets are driven by product premiumization and the
introduction of new flavors and healthy ingredients, such as the replacement of artificial sweeteners
with natural additives in an attempt to curb obesity. In another example, consumer interest in
probiotics is driving the demand for the global functional-food ingredients market.
▪ Multiples for Agricultural Products have seen a significant rise recently, increasing to a median of
14.8x as of December 31, 2018, compared to an average of 12.0x for the past five years; demand for
agricultural products should continue to grow as North American consumers utilize their higher
disposable incomes to consume higher-priced whole foods and produce.

26. GLOBAL DEALS: UK
The total number of transactions in 2018 sits at 209, compared to
202 in 2016 and 215 in 2017, equating to a fall of just 2.8% on the
previous year’s M&A activity. The numbers indicate that Brexit has
not had a significant impact on M&A in the food and beverage (F&B)
sector, and appetite for both inbound and outbound M&A by UK/ Irish
groups remains strong.
A more pronounced year-on-year decline was seen in 2018’s total
disclosed deal value, at £7.5 billion, compared with £21.7 billion in
2017. The major cause of this fall lies in the absence of sizeable
transactions in 2018. In 2017 the sector boasted five transactions
valued at more than £1 billion, including Tesco’s £3.6 billion
acquisition of Booker and the £6.2 billion sale of Unilever’s spreads
business. However, 2018’s deal value is not far behind that of 2016,
which stood at £8,435 million.

27. INDIA DEALS
Value of all M&As and PE deals in India in the retail and consumer sector (apparel, footwear, online-
offline retail, food chains, food aggregators, personal & home care, food and beverages etc) touched a
massive $27 billion in 2018
Hindustan Unilever (HUL) merged with GlaxoSmithKline (GSK) Consumer Healthcare in India. As part of
the $4.5 billion (Rs31,700 crore) deal, HUL’s Anglo-Dutch parent, Unilever, acquired the right to
market the iconic malt-based drink Horlicks in India and other Asian markets.
Avendus Future Leaders Fund acquires minority stake in Bikaji Foods
Group Lactalis to acquire dairy business of Prabhat Dairy for Rs 1700 cr
Café Coffee Day founder seeks 8000-10000 cr valuation from Coca Cola
BiryaniByKilo raises 30 cr from Ivy Cap Ventures in series A round
Sapphire Foods raised Rs 225 crore of equity investment led by Edelweiss Private Equity and its
existing investor Goldman Sachs for funding its expansion plans in India in December 2018
Massive Restaurants Pvt. Ltd (MasalaBar, Pa Pa Ya, Farzi Café) raised about Rs 100 crore in FY18 from
private equity fund Gaja Capital to fund expansion

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