Paper Cup Industry in India

By Ayush Goyal and Chaitanya Shangloo - IIFT Delhi

Ever since the former railway minister Lalu Prasad Yadav introduced the “Kulhads” into the Indian
railway catering systems, there has been an ensuing debate over the cost and benefits of the non plastic
option. Though what started as a surprising move, not because “Kulhads” were new to the system, but
because they were being used at a commercial level prompted many entrepreneurs to take the eco-
friendly business route. But replacing plastic variants has been a challenge of sorts, mostly because of
their ease of carrying, ease of transportation, weightlessness and odor free nature. This has led to
extensive usage of plastic cups for not only beverages, but also for serving ice- creams, sweet corn,
sweet delicacies and packaged food items. So any decomposable and eco-friendly substitute for the
plastic cups can only be viable for commercial usage if it can offer additional advantages of plastic cups.
Paper cups, with their inherent advantage of being easily decomposable, come in all sizes and shapes
and share the ease of use, temperature variations and odorless characteristics of their plastic
counterparts. The growing demand in the urban and semi urban markets, opening up of international
food chains and the acceptability of quality and eco-friendly products has made the production and
distribution of paper cups viable as never before in a country like India. This has led us to evaluate a
primary report on the industry and its potential in India. Though the survey and the primary research
have all been done with the NCR region in perspective, the implications and projections are applicable
on a pan India basis.

Usage and market potential

Paper cups are currently being used in all sorts of ready to eat products. The sizes available range from 60 ml to
550 ml variants. Paper cups, in the past decade as commercial commodity, have been used primarily for beverage
serving, especially coffee and tea. Since paper cups are made out of food grade papers, which are fast expanding
substitute to plastic and it families, they are being used now for nearly all catering purposes: corns, sweets, ice
creams and yogurts. And this is an ongoing trend as paper cups are expected to be used in increasing quantities
since they do not have the drawbacks inherent in plastic products. Traditionally also, paper packaging has been
used consistently in our country. It is only with the increased
Chemically consumption and regular demand pattern that the future of paper cup
Inert
Decomposable industry looks promising.
&
Odorless
A recent survey done in the NCR region puts in the supply at the
wholesale level at around 2 lacs per month. Seasonal demand
stimulated by the wedding and the festivities season puts another 1 lac
Light-Weight to 1.5 lac cups per month to this figure. And this is only for the
consumption at the small retailer shops and personal home users. The
table below shows the findings of the survey done and cross-checked in
the three retail markets of South Delhi. This shows the demand side
picture of the market potential:\
 Paper Cup Demand Analysis – By Type of Outlet
Retail Outlets Demand per Month Sizes stocked Usage
Dominos 4500 150 ml Soft drinks, Water
Nirula’s 2400 60ml, 150 ml, 330 ml, Ice-Cream, Soft drinks,
450 ml, 550 ml Sundaes, Shakes
Café Coffee Day 2500 150 ml, 250 ml Coffee, Tea

Pizza Hut 1500 330 ml, 450 ml Soft drinks

Giani’s (Premium Ice 2000 60ml, 150 ml, 330 ml, Ice-Creams, yogurts,
Cream and Shake Parlour) 450 ml, 550 ml Sweets
Pan Shop 4500 250 ml, 330 ml Lemon Soda, Soft drinks,
Coffee
General Retailer Shop 300 - 1000 250 ml Take away for home
Parties

The supply side and the demand side data suggest two interesting patterns in the usage pattern of the paper
cups. Firstly, the consumption and stocking of paper cups has seen a drastic increase over the years. Though
plastic cups sell nearly one and a half times as much as paper cups, the percentage of market that paper cup
commands is a close second with a higher growth rate, significantly different from a virtually nonexistent one
nearly a decade ago. To add to it, paper cups have also replaced the plastic and thermocol variants for
temperature sensitive food items like ice-creams, yogurts, tea, coffee and soft drinks. Secondly, the demand for
designer and printed cups has been on the rise. According to Mr Koli, the biggest wholesaler of paper cups in
Sadar Bazaar market, designer cups sell more easily and give better margins than their plain counterparts.
Whereas the standard 330 ml paper cup costs Rs. 70 / 100 pieces in the wholesale market, a same size designer
Mickey & Mini cups sells for Rs 60 / 48 pieces. Though the designer Chinese cups are currently rare in the market,
they sell for nearly 2 times the corresponding non designer variant.

Another boost for the usage of paper cup comes from the growing green concern. Indian railways and several
government institutions have banned the usage of plastic cup in entirety. The Northern zone of the Indian
railways alone uses nearly 2.5 lac cups on a daily basis. The ease of decomposability, recycle and reuse has
prompted many governments to promote the use of paper cups in the state, especially the hilly tourist
destinations. Since the process of manufacturing is also eco-friendly for paper cups, the market offers huge
potential for a budding entrepreneur in this country. Not only can he benefit from the carbon credits being
earned from such an industry, the increasing acceptance assures him of a long pattern of sustained demand.

Financial Viability
The following table describes the calculated financial details for a specific paper cup manufacturing
facility that might be setup:
Sl Particulars 1st year 2nd year 3rd year 4th year

1to 3 4 to 12

Month Month

1 Installed 1,50,00,000 1,50,00,000 1,50,00,000 1,50,00,000

Capacity /annum

2 No.Of.working 75 225 300 300 300

Days

3 No.of.shifts 75 450 900 900 900

4 Estimated 16,800 33,600 50,000 50,000 50,000

Prod/ day

5 Estimated Annual 88,20,000 1,50,00,000 1,50,00,000 1,50,00,000

Production

6 Value of sales 35.28 60 60 60

(In lacks)

PARTICULARS 1ST Yr 2ND YR 3RD YR 4TH YR 5TH YR

Income

Sales 32.34 55.44 55.99 56.55 57.12

Other income - - - - -
Increase in stock 2.79 2.00 0.05 0.10 0.15

Total 35.13 57.44 56.04 56.65 57.27

Expenses:

Raw material 18.62 31.92 32.24 32.56 32.89

Packing Materials 0.88 1.51 1.53 1.56 1.58

Transportation 0.60 1.21 1.33 1.33 1.61 Power & Fuel

0.76 1.30 1.36 1.43 1.50

Direct Labor 1.47 2.52 2.65 2.78 2.92

Partner Salary 3.00 3.00 3.00 3.00 3.00

Salary 0. 60 0.66 0.73 0.80 0.88

Repair & main 0.25 0.28 0.28 0.29 0.29

Security Charges 0.33 0.06 0.03 0.01 -

Admn. Expenses 1.38 1.52 1.59 1.67 1.76

Selling Expenses 0.65 1.11 1.12 1.13 1.14

Deprecations 2.45 1.85 1.40 1.06 0.80

Total 30.99 46.93 47.26 47.75 48.37

Profit before 4.14 10.51 8.78 8.90 8.90

Interest and Taxes

Finance Charges 1.81 1.40 1.04 0.75 0.43

Profit before Interest

And Taxes 2.33 9.11 7.74 8.15 8.47

Tax on Income 0.82 3.19 2.71 2.85 2.97

Profit after Tax 1.52 5.92 5.03 5.30 5.51

Distribution and Manufacturing

The distribution channel for this industry is split up into two kinds, one follows the clichéd distribution network as
that of any consumer goods industry – from the manufacturers to the distributors to the wholesalers to the
retailers and then to the end consumer. The other part is for the institutional buyers such as fast food chains and
restaurants who have central purchasing units who make their purchases for all the outlets at one single point
and then as per the demand at various outlets and then is supplied via their own vehicles or through specific
logistics service providers.

Manufacturers

(China, Mumbai & Ahmedabad)

Central Purchasing Units Distributors

Wholesalers

Outlets (Company owned/ Retailers and General shops

Franchisees)

End Users