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by EOS Intelligence EOS Intelligence No Comments

Commentary: How USA Can Deal with Its Waste Crisis

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It is not often that one can hear that a US$100 billion industry is in tatters, however, this is currently the reality in case of the US recycling industry. For years, the USA has been dependent on waste exports, to countries such as China, India, and Korea. However, that dependence has now placed the USA in a very difficult position, as the implementation of National Sword policy by China, the largest export destination for US waste, amidst the China-USA trade disputes, resulted in waste exports coming to a virtual halt since the start of 2018.

With waste generation growing, the USA has been left scrambling to look for alternative destinations for its waste, the largest being India, Malaysia, Thailand, and Vietnam, albeit none of them capable of completely compensating for waste exports to China. Recently, in March 2019, India also banned imports of plastic waste, eliminating another major avenue through which the USA could get rid of its trash.

US dependence on exports for waste recycling meant that the development of domestic recycling facilities has been neglected. The country’s domestic waste recycling sector is now incapable of handling the ever-increasing waste, a major chunk of which ends up in landfills, creating other environment and health-related problems.

However, where there are challenges, there are opportunities as well. We look at what challenges the USA currently faces, and how the recycling industry is trying to adapt and come up with potential solutions to the country’s waste problem.

USA’s linear model left recycling industry unprepared

Traditionally, US municipals have depended on external companies to dispose their waste. Most disposal companies follow a linear model, under which they collect the municipal waste and then segregate it for further processing (with majority of it previously being exported to China). This dependence on waste exports led to limited investments in developing or expanding the domestic recycling infrastructure, which the country has been left to rue in the wake of the waste import ban imposed by China and India.

Limited capacities have put extra burden on the system. Moreover, elimination of revenue from scrap sales to China puts additional economic pressure on waste processors. As a result, many waste collection agencies have either suspended waste pickup or raised prices to dispose of waste. Municipals too have to bear greater economic burden. Cities, which were earlier paid for their waste, are now being charged significant amounts for hauling waste.

Current waste disposal process is not up to the mark

Another key challenge is the lack of sorting at source, i.e. at the household level. Due to consumer’s preference, the USA follows a single-stream recycling system, where all recyclables are collected in the same receptacle. With no segregation happening at this stage of waste collection, the processor is responsible for sorting different type of materials for recycling.

However, the lack of capacity and established infrastructure makes it difficult and expensive to sort these waste materials, resulting in most of the waste being discarded, either ending up at an incineration facility or a landfill, which are much more cost-effective compared with recycling. Currently, only 10% of plastic waste generated in the USA is recycled, while 75% of it is discarded in landfills (remaining 15% being incinerated to form electricity – but that too has its critics due to the pollution caused).

How USA Can Deal with its Waste Crisis

Recycling companies invest to boost processing capabilities

Impacted by the loss of the key buyer and facing own limited capacities, several smaller recycling companies reliant on exports to China have shut down their operations, while several other recyclers have been forced to reassess market strategy from exports to processing.

Several recycling companies have already started investing to develop their domestic waste processing and collection infrastructure. As an example, Waste Management, a US-based waste disposal and recycling services provider, invested more than US$110 million in 2018 alone in developing additional processing capacity, acquiring new technologies, and boosting waste collection infrastructure.

Robotic technology is likely to witness more investment

With limited capacities and waste production growing, there is a need to improve the overall efficiency of waste sorting and recycling process. Companies across Europe and Asia Pacific have been researching and developing trash robots (also called “trashbots”) capable of collecting, sorting, and recycling waste and other scrap materials.

The trend is now catching up in the USA as well. Waste Management has already installed a waste sorting robot at one of its material recycling facilities, and plans to install three more robots in 2019. The company is also planning to install additional screeners and optical sorters at its facilities.

New opportunities are emerging in plastic waste recycling

With a significant focus on promoting sustainability, several other companies also see recycling as a promising business opportunity, thereby driving investment in recycling infrastructure. GDB International, a US-based company selling plastic scrap to international markets, was impacted by the Chinese import ban, and decided to invest in developing its own recycling capabilities. The company plans to recycle plastic scrap domestically, and sell recycled plastic pellets to plastic product manufacturers within the USA and abroad.

EOS Perspective

Chinese and Indian waste import bans have jolted the US recycling industry as a whole, pressing it to search for a solution to its swelling problem. The industry is witnessing problems which question the entire structure of the industry and challenge companies to reconsider their commonly utilized business model – shifting from a linear model to a circular economy.

The most obvious solution for the US recycling industry, in the short term, is to consider alternative waste destinations, such as Vietnam, Malaysia, and Thailand, to share the waste burden. However, since none of these markets are developed enough to sustain over a long term, this solution, at best, can be considered a temporary fix.

The government needs to take several initiatives to lay a strong foundation for a revamped recycling industry, such as banning or restricting the use of hard-to-recycle plastics (including single-use plastics such as straws and disposable spoons), and laying down strict guidelines for sorting of waste already at the household level, which will improve the efficiency and costs associated with the recycling process.

A coalition of plastics players and other industry groups is lobbying for provision of funds by the US government, an investment of US$500 million, to help develop local waste management systems. If disbursed, these investments will enable development of the recycling industry until it becomes self-sufficient in handling domestic waste. Once this happens, the costs of disposing and processing waste are also likely to reduce.

In the long run, significant private investments in building domestic recycling capacities will be required to effectively address the ever-increasing waste. Excess waste, which was earlier exported to China and India, offers a sustainable source of raw materials to justify these investments in developing the recycling infrastructure. Furthermore, increasing focus on sustainability is driving a demand for recycled raw materials. Development of downstream recycling and processing capabilities can also enable recycling companies to tap this lucrative business opportunity. Partnerships with end users are likely to open further revenue stream.

While private investments in recycling infrastructure have started flowing in and the rate is expected to pick up, these investments will take time before the added capacities actually become operational. The success of these investments, however, will depend on how effectively the US government is able to execute initiatives to aid growth of domestic recycling industry.

by EOS Intelligence EOS Intelligence No Comments

High Production Costs Dampen Camel Milk Market Potential

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Over the past few years, dairy-caused allergies and the growing debate regarding the inherent benefits and disadvantages of consumption of cow milk and its products have made consumers look for alternative sources to traditional dairy products. One product that has been growing in popularity owing to this is camel milk. Deemed to be the most expensive milk in the market, camel milk is known to have several medicinal values, especially for the treatment of diabetes, orthopedic problems, and autoimmune diseases. Few studies also claim that it is beneficial for the treatment of autism. While camel milk remains a niche product at the moment, it will be interesting to see if this product can make a dent in the massive dairy-milk industry, especially with the presence of several other healthy plant-based milk alternatives.

Growing demand and expanding production

Camel milk is not a new product as it has been consumed in the Middle East for ages, however, it is only recently that it has sparked global interest. Owing to its significant health benefits (primarily for diabetes), the product has found traction especially in developed countries, such as the USA, parts of Europe, Singapore, and Australia. The global market, which was valued at about US$4.24 billion in 2017 is estimated to register a CAGR of about 7% during 2018-2022.

Investments to expand Australian camel milk production

In response to the growing demand, several companies (especially across Australia) are entering the camel milk space and are increasing their investments in the sector.

Australia’s Wild Camel Corporation has expressed plans to increase its herd size five-fold from 450 camels to 2,500 camels over the next two years.

Similarly, Western Australia-based Good Earth dairy, which in mind-2018 had about 100 camels, plans to expand to 3,300 camels by June 2020, which would help the dairy produce about 10,000 liters of camel milk in a day.

Victoria-based The Camel Milk Co. doubled its milk output in 2017 to reach 250 liters a day from a herd of 250 camels. It has also maintained a scope for further expansion by moving to a farm that can house a herd of 1,000 camels, planning to increase its herd size along with growing demand.

International investments are also pouring into Australia’s camel milk market. In 2017, UAE-based investors funded a US$6 million (AUD8 million) pilot camel milk farm at Rochester, Australia. Several Chinese investors are also reported to be interested in investing in the camel milk business in the country.High Production Costs Dampen Camel Milk Market Potential

India’s camel milk production grows as well

In addition to Australia, India (and a few African countries, such as Kenya and Ethiopia) has also focused on increasing camel milk production.

India-based Aadvik Foods and Products, which procures raw camel milk from Indian camel breeders and herders and processes and markets it, has significantly increased its scale of operations. It started with procuring and processing 80-100 liters milk per month in 2015 and moved on to procuring and processing close to 8,000 liters per month in 2017.

In January 2018, Rajasthan’s State Government (in partnership with Jaipur-based Saras Dairy) announced its plans to set up a mini camel milk plant in Jaipur. The plant will cost US$1 million (INR 70 million) and is expected to be set up by the end of the year. Post the establishment of the Jaipur plan, the government plans to open another mini plant in Bikaner.

Expanding food product lines

In addition to processing and marketing camel milk, several companies across the globe are expanding their product base to include camel milk products such as milk powder, chocolate, cheese, infant formula, ice cream, etc.

In 2016, Desert Farms, a US-based camel milk company, added camel milk soaps and camel milk powder to its product range.

In 2017, India-based Aadvik Foods, also extended its camel milk product line to include camel milk chocolates and milk powder.

In a similar move, Amul, one of India’s largest dairy cooperatives, launched camel milk chocolates in late 2017. Unlike most other players in the market, Amul has first started with chocolates and then wishes to enter the packaged camel milk market in the near future.

In 2018, Australia’s QCamel announced its plan to launch camel-milk chocolates for the Australian as well as international markets.

In February 2018, UAE-based Camelicious launched the world’s first camel milk infant formula for children aged one to three, an alternative for children who are lactose-intolerant.

The camel products for children are praised for their benefits, as camel milk is the closest alternative to mother’s milk in terms of nutritional value. Since camel milk is beneficial for children as it has higher iron and vitamin C content compared with other milk options, products such as chocolates, infant formula, and ice cream, seem to be smart product extensions, especially if such benefits are highlighted through marketing.

Moreover, product extensions help companies reach a greater audience for their camel milk. Since camel milk is saltier than the largely consumed cow milk, products such as chocolates, help garner users that otherwise may reject camel milk due to taste preferences.

High retail prices hamper demand growth

While camel milk as a product is gaining popularity and acceptance globally, it is not without its share of challenges. Camel milk is the most expensive type of milk in the market.

In the USA, Desert Farms sells one gallon of camel milk for US$144 (US$38 per liter), while it sells a kg of camel milk powder for about US$370. In comparison, a gallon of cow milk sells for about US$3.50 in the USA.

In Singapore, a liter of camel milk sells for about US$19 per liter (US$72 per gallon). In comparison, cow milk sells for close to US$8 per gallon in Singapore.

Similarly, camel milk in India costs about US$7 per liter and camel milk powder costs close to US$87 per kg, whereas cow milk retails for about US$0.6 per liter.

While the benefits of camel milk are plentiful, they do not always justify the high price in the eyes of the consumer. The high cost can be attributed to the high production cost and low yield compared with dairy cattle produce.

In Australia, the cost of producing one liter of camel milk is around US$13 (AUD17), while in India a liter of camel milk cost US$5-6 (INR 350-400) to produce – in comparison to this, producing one liter of cow milk costs farmers about US$0.27-0.32 (AUD0.37-0.44) per liter in Australia and US$0.2-0.27 (INR 14-22) per liter in India.

Camels also produce less milk in comparison with cows. While cows produce around 16 liters a day, a camel usually produces only 6 liters a day.

While the benefits of camel milk are plentiful, they do not always justify the high price in the eyes of the consumer.

In addition to the barrier of high price and costs, camel milk also faces significant competition from plant-based milk alternatives, such as soy, almond, and coconut milk. These milk options are also considered to be a healthy alternative to cow milk and have the added benefit of being vegan. Moreover, while these milk options are more expensive in comparison with cow milk, their prices are still considered more reasonable when compared with camel milk price.

EOS Perspective

Camel milk has a lot of inherent benefits, which are expected to ensure steady sales growth over the next decade. While there are no doubts regarding the growing popularity of camel milk, it is too far-fetched to say that this market can dent the dairy mega-industry. Camel milk market is standing at the beginning of its promising growth curve, however, it must work towards pushing the production costs down to become more mainstream rather than niche, which will not be achieved by simply marketing the medicinal properties of the product.

Camel milk market is standing at the beginning of its promising growth curve, however, it must work towards pushing the production costs down to become more mainstream.

Several dairy farms across the globe have realized this aspect and are working towards achieving economies of scale and getting costs down through increasing operations size and venturing into extended product lines. While it is certain that the industry will continue to grow, it is yet to be seen whether it can create a shelf space for itself across large retail stores or whether it remains a primarily niche premium online sales product mostly for affluent consumers.

by EOS Intelligence EOS Intelligence No Comments

Bharatmala – A Game Changer for Indian Logistics?

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Due to its poor logistics infrastructure, bureaucratic bottlenecks, and heavy reliance on roads, India has long suffered from high logistics costs. This has significantly impacted its global trade competitiveness. To address these challenges, the Modi government, in 2015, launched Bharatmala Pariyojana, a flagship project that aims to transform India’s logistics infrastructure. We are taking a look at the key aspects of Bharatmala to assess whether the project has a chance to be the game changer for Indian logistics industry.

India has been long known for its inefficient logistics and freight management. The current freight modal mix is highly skewed towards roadways, which account for over 60% of the total goods transported. This signals under-utilization of cost-effective transport modes such as railways and waterways. India has therefore one of the highest logistics cost, standing at around 14% of its GDP against the average of 6-8% in many other countries.

High logistics costs are caused primarily by poor transport infrastructure and bureaucratic bottlenecks. As per The Associated Chambers of Commerce & Industry of India (ASSOCHAM) estimates, India could save US$50 billion just by reducing its logistics costs down to 9% of its GDP. To achieve this, there is an imminent need for an integrated logistics and transport policy that can bring down the overall logistics cost by addressing the present infrastructure and legislative challenges. The Modi administration has realized this and therefore strong impetus has been given to improve the nation’s logistics infrastructure.

India has one of the highest logistics cost, standing at around 14% of its GDP against the average of 6-8% in many other countries.

To improve India’s logistics and trade competitiveness, the government, in 2015, launched its ambitious Bharatmala Pariyojana, an umbrella of programs that aim to bridge the current infrastructure deficiencies through corridor-based development across the nation. This in turn is expected to result in faster movement of goods and in a boost of national as well as international trade while reducing logistics costs.

The project aims to construct a network of 66,100 km of highways at an estimated cost of INR7 trillion (~US$101.7 billion). Under the first phase of the project, a total of 34,800 km of roads with an investment of INR5.4 trillion (~US$78.5 billion) are to be constructed by 2022. The funding for the scheme will be raised through various sources: INR1.4 trillion (~US$20.3 billion) will come from the earmarked Central Road Fund (CRF), INR2.1 trillion (~US$30.5 billion) is expected to be raised as debt from market borrowings, INR1 trillion (~US$14.5 billion) from private investments, and the rest from expected asset monetization of National Highway (NH) and toll collections.

Bharatmala - The Game Changer for Indian Logistics

Under the first phase of the project, 44 new economic corridors will be developed to improve connectivity across corridors and remote areas of the country to ensure faster movement of freight. The project will kick start from western states of Gujarat and Rajasthan, and move towards Punjab, Jammu and Kashmir, Himachal Pradesh, Uttarakhand in the north, and towards Bihar, West Bengal, Sikkim, and Assam in the east, right up to Indo-Myanmar border in Arunachal Pradesh, Manipur, and Mizoram.

Further, 35 multi-modal logistics parks are also planned to be developed that will serve as centers for freight aggregation and distribution, storage and warehousing, and other value-added services. These logistics parks will cater to key production and consumption centers accounting for 45% of India’s road freight. As a result, the consolidation of freight is expected to improve efficiencies and reduce logistics costs by approximately 25%.

EOS Perspective

There is no doubt that, if implemented as per the plan, Bharatmala project has the potential to transform the entire logistics landscape in India. However, given the country’s past project record, there are major hurdles that need to be addressed.

First and foremost, in order to catch up with the ambitious project targets for 2022, the government needs to construct 40 km of roads per day, up from the current average of 23 km. Achieving this looks very challenging, especially when The Road and Highways Ministry has so far lowered the total road projects awards to 20,000 km for FY2018/19 from 25,000 km in FY2017/18.

In addition, timely land acquisitions, lack of clear land titles, regulatory clearances, and dependence on local authorities are some other roadblocks that will hinder project implementation.

Lastly, there is a growing sense of political volatility amid the upcoming general elections in 2019. Given the recent form of setbacks that the ruling party has faced in state elections, there are growing concerns over its victory. A change in government could seriously impact Bharatmala and ancillary projects, since the new government may have different agenda as their priority.

In order to catch up with the ambitious project targets for 2022, the government needs to construct 40 km of roads per day, up from the current average of 23 km.

In 2014, when Narendra Modi’s administration took charge, highway projects over INR1 trillion (~US$14.5 billion) were stuck either for funds or various regulatory clearances. The government has made noteworthy progress since then by expediting many of these projects.

By leveraging technologies and removing bureaucratic bottlenecks, the government seems to be committed to strengthen the sector. A quick look into last two union budgets clearly indicates that the government’s thrust has been on enhancing infrastructure in India and massive budgetary provisions have been made to improve logistics infrastructure. In recent weeks, a big push has been given to complete about 320 important highway projects ahead of the elections next year.

If re-elected, the Modi administration is expected to keep the current infrastructure momentum going. This might not only improve India’s logistics competitiveness, but also make other government initiatives such as Make in India more compelling for private investors. The project might also give a strong push to the economy by generating millions of direct jobs in sectors such as construction, logistics, and transportation, as well as indirect employment opportunities in manufacturing and other ancillary industries. It can boost manufacturing as well as trade, since there will be a surge in demand for goods such as steel, cement, construction equipment, commercial vehicles, etc.

There is no doubt that once completed, Bharatmala has the potential to transform the entire Indian logistics sector. However, at present, for Bharatmala project and the logistics sector, a lot hinges on the outcome of the upcoming elections.

by EOS Intelligence EOS Intelligence No Comments

Infographic: Dark Chocolate – India’s New Indulgence Is Here to Stay

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India’s indulgence in dark chocolate is gradually rising. While the Indian chocolate industry has grown manifold over the decade, especially in milk and white chocolate segments, it is the dark chocolate segment that has gained momentum in the recent years. The growth in demand for dark chocolate can be attributed to the growing health consciousness, increased per capita income of the urban population, and exposure to foreign flavors, especially amongst urban Indians. Most of the demand (and market) is currently limited to urban cities as dark chocolate is typically priced higher than other chocolate types. Nevertheless, though still getting accustomed to the bitter taste of dark chocolate, Indian market offers great growth prospects for players associated with this sector provided they plan efficiently and act keeping in mind the specifics of the Indian market scenario.

by EOS Intelligence EOS Intelligence No Comments

Commentary: Indian Automotive Sector – Reeling under the Budget

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The Indian automotive industry has been witnessing a period of recovery and growth over the past couple of years. Every year, automakers look towards the government to provide a stimulus in the form of favorable policies and budget allocations, to spur growth in the sector. A week has passed since the announcement of Indian budget for FY 2018-2019. We take a look at its short and long-term impact across the automotive value chain.

Supply-side scenario (component manufacturers and OEMs)

The current Indian government under Prime Minister Modi has been focusing on promoting domestic production of automobiles and auto components, as a part of its “Make in India” campaign. A 5% increase in customs duty on imported completely knocked down (CKD) cars and automotive components for assembly and sale in India is seen as another step in this direction.

While international OEMs such as Volkswagen and Skoda have been left reeling under the burden of additional costs, this provides an opportunity to spur growth particularly in the domestic components manufacturing.

Another positive news for domestic automotive components manufacturers, most of which are small and medium scale enterprises, is the reduction in corporate tax rate by 5% percentage points (for companies with a turnover of under INR 250 Crores / USD 38.83 million). These tax savings can provide companies with additional capital to invest in their business, aiding their long-term growth.

Investments in road and rural electrification infrastructure also encourage OEMs to bring new products, particularly electric vehicle (EV) portfolio, to the Indian market. However, lack of an established EV infrastructure means that this market development is likely to occur only over a long-term horizon.

Demand-side scenario (individual and corporate consumers)

The key factor impacting the demand for automobiles is perhaps how deep the consumers’ pockets are (or can be) after bearing all the tax burdens – in other words, how high the disposable income is in India. This is even more relevant for the lower-end of the market (or the so-called “mass spectrum”).

Minimal income tax incentives to individuals, coupled with rising inflation, are likely to limit the disposable income of most people (particularly in the low and medium income brackets), which form the largest consumer base for automobiles in terms of volume.

A booming stock market in India attracted several consumers in the middle income group to invest their capital in equities. Levy of a 10% long-term capital gain tax (LCGT) on returns from these equities (although grandfathered till INR 1 Lakh / USD1,553) is likely to put even further pressure on consumers’ pockets, especially for those looking to finance their automobile purchases by getting the most out of their investments.

Moreover, the knee-jerk reaction to this year’s budget was also observed on the equity market. The negative sentiment has led India’s two leading stock exchanges – BSE and NIFTY – witnessing a 5% decline within a 7 day period from the announcement of the budget, thereby eroding consumer’s wealth, which may further impact consumers’ short-term decisions to purchase vehicles.

On the other hand, the support provided to the agricultural sector is likely to spur demand for tractors and small passenger vehicles in rural areas, however this demand growth is dependent on the agricultural output, and derived from it incomes, in the coming year.

Aftermarket scenario (recyclers)

For the past couple of years, automotive companies as well as aftermarket recyclers have been expecting the government to bring in the scrapping policy, which would allow consumers as well as OEMs to benefit from voluntary replacement and scrapping of vehicles older than 15 years. However, lack of any announcements related to this policy has left the aftermarket recyclers and OEMs disappointed. They will need to wait to tap the demand expected to come from voluntary replacement of old vehicles in exchange of monetary benefits.

EOS Perspective

The scenario for electric vehicles (EVs) looks bright over a long term with significant investments going into development of rural electrification infrastructure, which will impact the development of the EV ecosystem beyond the metros as well. OEMs look at this as an opportunity, and this is evident from the number of EVs and electric concept cars to be unveiled at the Auto Expo 2018, India’s largest automotive exhibition. However, in a short to medium term, the adoption of EVs is likely to be limited to the corporate sector. General mass adoption is likely to lag behind due to vehicles’ high prices, and limited distance range/capacities offered by the current EVs available in the market.

As the mass automobile demand is expected to remain lull in the short term, the market will be driven by luxury and premium segments, which is largely unaffected by the budgetary challenges. A push is evident from OEM-side as well, with a number of premium, high-end products (such as SUVs, large displacement motorcycles, and luxury vehicles) launched at the Auto Expo 2018.

While the budget has left a lot to be desired, there are positives which bode well over the long term. The market is likely to witness a downturn in demand over a short term, as the consumers are likely to turn to preservation of wealth till the negative market sentiment prevails. Moreover, as the government invests in infrastructure projects, demand for both commercial and private vehicles is likely to pick up in the future.

It remains to be seen how soon the market witnesses a recovery in terms of automobile demand. One thing is certain, as always, when the budget comes next year, expectations will be high, partially fed by this year’s disappointments.

by EOS Intelligence EOS Intelligence No Comments

Commentary: OLA Finds Its Way on Aussie Roads

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With plans to expand globally, Ola Cabs, India’s leading ride-sharing service provider, marked its entry into the international market by announcing in January 2018 the launch of its services in the Australian territory. While the exact date of the service launch in Australia is not yet decided, as it is subject to regulatory approvals, the service provider has already started the ground work by inviting private hire vehicles to join them. The company is starting to collaborate with private hire vehicle owners in Sydney, Melbourne, and Perth, the three cities where Ola cabs will initially be available for rides, to be ready to roll out once the commercial operations commence.

Presently, the market for ride-sharing service providers in Australia includes players such as Uber, Taxify, and GoCatch, among others. With Uber, which has emerged as the leading player in Australia, already present in the market, Ola needs to have its strategy, policies, and priorities set just right to smoothly launch and successfully run its operations. However, the presence of Uber has worked, to some extent, in favor of Ola, as it paved the way for ride-sharing services in the country resulting in regulatory policies being already in place. This makes the market entry a bit easier for Ola as the company will not need to deal with several challenges that the early market entrants in such novelty markets as ride-sharing typically have to tackle.

However, competing against its largest rival, Uber, is not the only concern for Ola. To be successful in the Australian market, Ola also has to focus on smaller and newer competitors, and set its operational and pricing policies keeping in mind their strategies in the market. Taxify, an Estonia-based company that launched its operations in Australia in December 2017, is expected to closely compete with Ola, especially with its ride services being operational only in Sydney and Melbourne, two of the locations where Ola is launching its services as well. With two ride-sharing service providers launching its operations in similar locations within a span of few months, a price war between the two is expected to happen. Currently, Taxify offers rides to its commuters without any surge pricing, making the ride cheaper than Uber. If Ola plans a similar pricing structure, among other strategies to drive the business, the competition between the two operators will, most likely, heat up very soon.

With two ride-sharing service providers launching its operations in similar locations within a span of few months, a price war between the two is expected to happen.

In the Australian market, the ride-sharing services segment is still in its infancy stage of development and with only one player (in this case, Uber) currently dominating the scene, it makes sense for Ola to launch its operations here now, offering a new option for consumers to choose from. Entry of Ola, along with new players such as Taxify, may indicate a transitioning phase in the Australian ride-sharing market as the entry of new players has the potential to end Uber’s monopoly. Currently, with very little known about the operating dynamics, not much can be commented about the success of Ola in the Australian market. However, the unsaturated state of the local market clearly indicates that Ola has a good chance to thrive in Australia, as long as they get the pricing right and set their eyes on the long-term business growth rather than short-term gain through higher prices.

by EOS Intelligence EOS Intelligence No Comments

Indian Nutraceuticals – Potentially Rich Market Momentarily Disrupted by Frail Policies

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Over the past few years, consumption of diet supplements and functional foods and beverages has seen a rise in India, fueled by an increasing health awareness and a slow shift towards preventative health care. India’s nutraceutical sector offers tremendous opportunities, a fact that has led to the emergence of various players offering wide range of nutritional products. Other than nutraceutical companies, a mass of pharmaceutical and FMCG companies has entered the market leading the dietary supplement and the functional food and beverage category. India’s future in nutraceuticals industry looks promising, however, there is an immediate need for regulatory clarity and cost efficiency to streamline the otherwise progressing sector.

Currently, the USA, Japan, and Europe account for more than 90% of the total global nutraceutical market. But with these markets attaining maturity, the focus of nutraceutical players is shifting towards developing economies, especially those across Asia Pacific, including India. Indian market holds only a 2% market share of the global nutraceutical market and its estimated valuation stands at around US$4 billion as of 2017. It is expected to reach US$10 billion by 2022, increasing at a CAGR of 21% over the period of five years. The high potential of the Indian nutraceutical sector is propelled by the growing awareness of healthy lifestyle and the benefits of a balanced and nutritious diet in Indian population (especially in its urban section). India’s promise to remain a growing market, at least in the near time, also lies in the increasing income of the country’s vast middle class.

It’s not all nice and easy

While India may seem to be a favorable location for nutraceutical players to enter because of the rising urban income and increasing health consciousness, setting up new business here is not easy. Nutraceutical companies have the opportunity to develop and offer wide range of nutritive products for the populace but face challenges in broadening their reach in the local market.

The lack of consistent regulation and standardization of nutraceutical products is one of the key challenges faced by nutraceuticals producers in India. Product cycle in the nutraceutical industry is regulated by strict guidelines through each phase of product development, from the selection of raw materials to the packaging stage. FSSAI (Food Safety and Standards Authority of India) issues regulations on licensing and registration of business, packing and labelling, food products standard, additives, etc. However, irregularities in laid guidelines for registration of nutraceuticals, permitted additives, and packaging often create problems for companies to get product approval quickly leading to costly delays. The most common concern that nutraceutical manufacturers face is the lack of clear differentiation between raw materials, additives, or colors categorized as permitted to use in a pharma drug or a nutraceutical product. What is more, some colors and additives commonly used in food do not find place in the list of permitted additives for nutraceuticals under the regulations. Similarly, any product packaged and marketed in the form of a gelatin capsule is considered as a drug and not necessarily a nutraceutical or dietary product, regardless of its function and indication. Thus, it is necessary to have regulations for permitted additives, product registration, product approval, and pricing specifically for nutraceuticals. In the light of the rapid growth of this segment in India, it is imperative to treat this segment as a separate entity and have clear product definitions and production guidelines.

Another challenge for producers is to arrive at the right pricing for their products in the local market. Though the demand for nutraceuticals is expected to rise considerably, the high prices of nutraceuticals limit their adoption in the Indian market. Nutraceutical producers try to recover their R&D costs in a short span of time by putting a high price tag on their products, but in a price-sensitive market such as India, high costs associated with producing nutraceuticals (or putting high margins on products) is a major restraining factor. Also, affording health products, which cost much more than some of the basic food items, is a key concern for majority of Indian population.

Moreover, with the introduction of GST (Goods & Services Tax) in July 2016 (we talked about it in our article GST Likely to Become India’s Biggest Tax Reform in August 2016), nutraceuticals and other health supplements are subject to 18% tax (with few categories even taxed at 28%), making these products considerably more expensive than before (when they were taxed at 12%). High taxes associated with nutraceutical products could also affect the entry of new players in the market as these new players would be pressed to launch their products at lower prices in order to get a slice of the market. This could only be achieved by either lowering the cost of production or accepting a lower margin, and both of these options might make the new players apprehensive about entering the market now.

Nutraceuticals in India

Evolving competitive landscape

Pharmaceutical and FMCG companies dominate the nutraceutical market with very few pure play nutraceutical companies. Key players in the Indian market consist of both domestic and multinational players. While MNCs such as Amway, GSK, Abbott, and Danone are focusing more on regional penetration, domestic players such as ITC, Dabur, Himalaya, and Patanjali are launching new products to reach out to newer segments. The range of dietary supplements that accounts for about a third of the nutraceuticals market in India is captured by pharmaceutical companies. Meanwhile, there has also been a compelling change in consumer preferences towards functional foods and beverages. These consumables have nutritional and disease preventing qualities and are mainly catered to by the companies in the FMCG domain. The market for functional products is most likely to see a higher growth than the dietary supplements owing to the increasing number of people being affected by lifestyle diseases.

EOS Perspective

FSSAI is keen to introduce amendments to the existing regulations pertaining to nutraceuticals and dietary supplements, so much so that a set of new and (allegedly) consistent regulations and standardization procedures for nutraceutical products are to be implemented in January 2018. This raises hopes that the nutraceutical companies will be able to produce, distribute, and sell products within a clearer framework pertaining to permissible ingredients, labeling, etc., in nutraceutical products. The regulations also include an exhaustive list of ingredients, which are permissible in nutraceutical products, enabling players to introduce new products in the Indian market.

Apart from restructuring the regulations, there is also an urgent need to reduce the price of these products to make them accessible to consumers across many income levels, across the country. Currently, the penetration of nutraceuticals in urban India is 22.5% but this rate stands only at 6.3% in rural parts of the country. Urban consumers, though are aware of the benefits of nutraceuticals and often have higher disposable income, are somewhat reluctant to add these products in their monthly budgets on a regular basis, unless required, due to exorbitant prices. Making these products available at more competitive prices could enable players to capture a good share of urban Indian market over a short span of time.

There are also considerable opportunities beyond the urban segment, as population in rural parts of the country represents a huge untapped potential for nutraceuticals sales. Financial capabilities of rural consumers are surely much lower than of their urban counterparts, but this does not mean that the rural market should be ignored altogether, as this segment can offer considerable sales volume, especially that the incidence of undernutrition in rural population is higher than in urban areas. This market, however, should be approached with a different tactic. Players should consider expanding their reach in this segment with simpler, lower-priced, generic products and with products on which they can afford cutting their margins the most. It is important that they also broaden their distribution reach to make their products available in local dispensaries in rural areas, and work with local healthcare providers to drive awareness and demand for nutraceutical supplementation. But in order to really get a firm grip on the rural segment, the pricing should be much more attractive, and this could be potentially achieved by working with the government, local authorities, and healthcare organizations to launch initiatives in the form of subsidies, tax rebates, or other co-payment forms to allow to bring the product price significantly down. Obviously, this might be difficult to achieve in the near term, as public entities are unlikely to see this as a priority in assigning funds. So till this changes, it appears that a refurbishment of the regulatory framework is going to be the only turning point in the growth route that the nutraceutical players can hope for.

by EOS Intelligence EOS Intelligence No Comments

As GM Says Goodbye, Volvo Says Namaste India!

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18th May 2017 was a busy week for India’s automotive industry. One would think that it was the financial year end which was causing all the drama, but not really.

It was the week when, to some people’s surprise and other’s ‘that was expected’ reactions, GM India decide to call it quits – no more of the beloved (?) Chevrolet brand on India’s roads anymore. Cars will continue to be produced (or so GM claims, at least for the time being), but only to be exported to other markets in the APAC region.

The fact that GM is withdrawing from India does not come as a surprise – GM’s Chevrolet brand hasn’t performed well in India, in spite of GM introducing new models in recent years. In the segment, in which GM introduced its vehicles (mostly hatchbacks), there had already been an intensive competition from the likes of Maruti and Hyundai, and more recently Nissan. It would have perhaps been better for GM had it introduced models such as Opel or even Cadillac to lure a wider segment of India’s population. One of the reasons OEMs such as Nissan, Honda, or Toyota have done well is that they constantly innovated for the India market, changed designs, and introduced new models and variants that catered to a wide customer base. GM seems to have fared poorly on that front. GM simply failed to sense of the pulse of India’s car buyer who looks for an all-inclusive deal: value-for-money + safety + luxury + service + brand appeal + etc., which clearly was not being provided by the American OEM.

As GM was announcing its exit, Volvo, a Swedish OEM, shared the ambitious goal of doubling its market share in India’s premium segment by 2020. Interestingly though, Volvo’s announcement to start assembling premium cars did not come as a surprise. It already has a good brand name in the CV segment and in the PV segment, the section of India’s customers who would buy a Volvo car already associates it with classy design and exceptional safety. Local assembly would, in fact, be a boost for Volvo if they are able to introduce locally made, India-priced cars as well as use this India production as a hub for South-east Asia exports. Indian car buyers are hungry for more and more international OEMs to enter the market and provide them with world-class products, and cars are no exception. Albeit late to the party, Volvo has the breadth of quality products and service competence to make a strong dent in the premium segment.

So, while 18th May was good for some and bad for quite a few, the dynamics of India’s automotive market continues to keep OEMs on tenterhooks – yes, there is a great opportunity if one gets the formula right, but the pill of failure can be extremely bitter.

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