Industry Watch: Flour

    Zahedul Amin
    Zahedul Amin

    Bangladesh is predominantly a rice-consuming country but with the rise in health consciousness, price hike of rice and industrial use to make biscuits, bread and other snacks, flour consumption is going up in Bangladesh. At present flour is the second most important food staple in Bangladesh and accounts for around 12 percent of cereal food consumption. (Source: Global Agricultural Information Network, Sayed Sarwer Hussain, May 2013)

    Wheat consumption generally continues to grow steadily, driven by demand from mid to higher income urban consumers. Bangladesh wheat millers are seeing growing opportunities to market branded quality packaged wheat flour, replacing coarse wheat “Atta” flour typically sold in loose bulk form. An emerging bakery and biscuit sector, as well a growing hotel, restaurant and institutional (HRI) sector, is also contributing to a growth in quality wheat consumption (now estimated at around 100,000 tons a year). Domestic wheat production has currently stabilized at around 1.25 million metric tons a year, but with an annual demand of flour exceeding 4 million tonnes, there is a supply-demand gap prevailing in the market. (Global Agricultural Information Network, Sayed Sarwer Hussain, May 2013)

    Fig:1 The table below portrays the historic import trend for wheat since independence.

    Wheat Import

    Source: USDA Foreign Agriculture Service Grain and Feed Update

    According to Bureau of Statistics (BBS), Bangladesh’s wheat production has increased by 26 percent to 1.254 million tonnes in FY2012-13. Lower production cost and higher profit margin are attributable for better performance. Additionally, large scale government procurement has further spurred production. For 2013-14, government is planning to import 8.5 lakh tonnes of wheat and buy 1.5 lakh tonnes from the domestic market.

    Consumer Insight

    In order to understand consumer buying trend, a study was conducted on 100+ consumers in Dhaka city from urban and semi urban classes of the population. The survey has revealed interesting insights on the market situation along with cost and revenue factors driving the flour industry. A questionnaire was designed in order to reflect the factors influencing them to buy a particular brand, the quantity that they prefer to buy, and other information, some of which has been shared in this industry watch.

    Quantity Purchased

    According to a survey, most respondents prefer to buy the product in bulk quantity. It’s mostly because of two reasons, firstly most consumers conduct their monthly grocery shopping at one time so they prefer bulk purchase and the fact that they they want to take price advantage of bulk purchase. Most consumers (57%) consume more than 2Kg of flour per week.
    Fig:2 Quantity purchased per week

    Quantity Purchased

    Source: LightCastle Partners Primary Research

    Over the last year, the retail price of coarse wheat flour has been steadily increasing, reaching Taka 35 ($0.44) per kilogram in February, 2013, a 9.4 percent increase from the previous year (Figure 3).  During this same period, the average wholesale price of wheat flour increased by about 7 percent reaching Taka 32,000 Taka (US $400) per ton. The huge gap in demand and supply of wheat and the trend at which price is gradually hiking, it is quite safe to presume that prices are going to go up in the future. 

    Market Share

    Respondents were asked which brands of flour they use and the data obtained could be used as a proxy for the market share of different brands in Flour Industry. Teer (44%) is the most popular brand, followed by Fresh (22%) and ACI (18%). All other brands have less than 5% market share.

    Fig:4 Market share of the different brands

    Flour MS

    Source: LightCastle Partners Primary Research

    An in depth interview  with some dealers and retailers have shed light on some key information. Commission is the most attractive incentive for pushing a particular brand. For some retailers, credit term  play a role but mostly retailers can enjoy better credit terms if they maintain good relationship with dealers or the company, so retailers mostly focus on brands that give them most revenue. There were certain brands which were once market leaders for example Yousuf, Noorani etc but they lost the market due to poor distribution network. At present there is no distinctive market leader since consumer buying patterns vary depending on availability of product, mostly consumers tend to choose Teer, ACI or Fresh since they have better availability. Even though it is difficult to estimate the total demand of flour across country but according to retailers approximate demand in Naryangang is around 3000 ton/Day and in Dhaka city is around 2500ton/day.

    Factors Affecting Choice of Brands

    Consumers’ choice of brands mostly depends on brand quality. In this case, the main deciding factor is the perceived quality; consumers tend to develop a perception about a brand by judging the whiteness of the product or through advice from retailers. In addition to quality, promotion and availability of products play a major role in influencing  consumers to choose a product. Consumers tend to choose the brand they can recall but if they don’t find the familiar product it is likely that they choose the brand which is present at the store.
    Fig:5 Influencing Factors of decision making of buyers

    Brand Purchase

    Source: LightCastle Partners Primary Research

    Overall, since flour is a basic essential with growing demand, spurred by increasing population base, the sector has strong  growth prospects. Since the product is low involvement, players must constantly engage in brand building activities e.g. TVCs, to retain consumer mind share. Robust Supply chain for industry players remains of paramount importance since product availability at remote corners of the country is critical to success. Many existing market players have taken expansion projects for gaining economies of scale. With such growth prospects, the sector can accommodate more players.
    In collaboration with Debojit Saha
    Please contact us for further queries and research needs : [email protected].com, [email protected]

    Do you want consumer/market data on your preferred sector? Please fill out the form and we’ll get back: https://docs.google.com/a/lightcastlebd.com/forms/d/1sl-IcBYHc7BXTWOgXK-LL_DU8BkTS73cXEdyaRF4rTo/formResponse

    Zahedul Amin

    Zahedul Amin is the Co-founder and Director of Finance at LightCastle Partners, an emerging market specialized business planning and intelligence firm. Earlier, he worked as the Assistant Vice President, Risk Analysis Unit, in HSBC. He completed his E-MBA at the Institute of Business Administration (IBA), University of Dhaka, and completed his undergraduate degree from the same institute. He can be reached at [email protected], Twitter: @amin_zahed

    3 comments:

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      rezwan

      well collected data analyse.. but one thing has been ignored totally; may be not focused properly.. that is the supply side of the flour in Bangladesh market, which is almost more than triple the demand of the product..that is the main reason why retailers and dealers look for “Better Credit terms”.. as of you already know that maximum flour sold 100% credit from 30 days upto 90 days in a bulk through the distribution channel, of which has no security or bank guarantee… on the other hand similar consumer goods product line such as edible oil or salt sold in market with full 100% cash in a bulk .

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      Zahedul Amin

      Hi Mr. Rezwan. Thanks for your feedback. We fully understand that the supply side is growing with new players entering the market e.g. Bashundhara, while existing ones are also expanding capacity. We have conducted detailed sector analyses which entail both demand-supply projections. Since the above document is only an industry snippet, we didn’t detail out our findings.
      Feel free to contact us individually if you have further queries.

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      Nazib Haider Chowdhury

      When was the market share determined?

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