As the dairy products industry in India, estimated to be over Rs 2,27,300 crore, gets organised slowly but steadily, it is opening up a plethora of opportunities for existing as well as new players. Constituting about 18% of the market in 2005, the organised portion, according to industry estimates, is set to go up 12 percentage points by 2011. That is a chunky 30% for the organised market. The unorganised portion, on the other hand, will shrink 14 percentage points, to constitute 22% of the market in 2011 from 36% in 2005, say experts.

Dairy products are also retained by rural households for their consumption. This segment constituted about 46% of the industry in 2005. It will go up marginally to 48% in 2011. So the big shift really is from unorganised to organised. And this puts the spotlight firmly on corporates and cooperatives who dominate the organised side of the market.

Historically, milk procurement on the organised side of the business has revolved around cooperatives. It is not surprising that these players span product and price points. Amul, promoted by the Gujarat Cooperative Milk Marketing Federation (GCMMF), and Mother Dairy, promoted by the National Dairy Development Board (NDDB), are cases in point. Amul in specific has almost 35-36 products in its portfolio spanning various price points. What clearly works to its advantage is the milk it procures, which, according to RS Sodhi, chief general manager, GCMMF, who is in charge of marketing at the cooperative, averages about 90 lakh litres per day now. ?Milk procurement was about 87-88 lakh litres per day in the last financial year. It has gone up this year,? he says.

It is the sheer volume of milk that gives the cooperative the advantage of playing around with its product portfolio. For instance, the cooperative sells about 61-62 lakh litres per day as pure milk alone. This is, the traditional pouch milk targeted at the mass market. The balance is used to produce value-added products. NDDB, on the other hand, procures about 30 lakh litres of milk per day, says Paul Thachil, chief executive officer, Mother Dairy India, the marketing arm of the cooperative. ?But a significant portion of it is sold as pouch milk,? he says.

Volume sales for these cooperatives typically come from the pouch milk market. ?Our endeavour is to drive penetration; so an aggressive pushing of our products becomes necessary,? says Sodhi. GCMMF, for the record, clocked sales of Rs 6,711 crore in the last financial year. A significant portion of its topline came from the pouch milk category though segments such as ultra-high-temperature or UHT milk, cheese, butter and ice-cream also contributed significantly to its turnover last year. The company says that the sales of pouch milk grew 44%, UHT milk 26%, processed cheese 25%, butter 17% and ice-cream by 16% last year.

Mother Dairy, on the other hand, which sells edible oil and fresh fruits and vegetables apart from dairy products, registered sales of Rs 3,200 crore in the last financial year. ?We are eyeing a turnover of Rs 4,000 crore at the end of this financial year. Dairy will play a big part in it.?

For dairy to be key, an aggressive push, as Sodhi says, is important. For this to happen the retailer margin has to be significant.

Retailers in Mumbai, for instance, charge an extra Rs 2 for a one-litre pouch of cow?s milk by Amul. ?It?s Rs 22 on the pack, but it retails at Rs 24,? says an expert. It?s no different for Amul?s rivals?Mahananda and Gokul?in Mumbai or for that matter any other brand in any other market. Take Nandhini in Bangalore?which says Rs 8 on a half-litre pouch, but sells at Rs 9. ?Incentivising trade is important,? says Anand Ramanathan, manager, KPMG Advisory. ?They interact with the customer at the end of the day. If they are not incentivised why will they push your product??

Not surprising that the cooperatives also dominate the branded milk market in the country. Milk, for the record, is the largest segment in the dairy products market in India. At Rs 19,500-20,000 crore, milk constitutes around 65% of the orgaised (branded) dairy products market, according to estimates.

Besides national players, there are a number of local brands that dominate milk distribution. If Amul is strong in Gujarat, Mumbai, Kanpur, Lucknow, Raipur and Kolkata, in Delhi, it is Mother Dairy that is the clear leader. In Karnataka, it is Nandhini; in Tamil Nadu, it is Aavin; Bihar has a leader in Sudha and in Rajasthan, it is Saras. Verka dominates the Punjab market, while Madhya Pradesh is led by Sanchi.

The stranglehold of the cooperatives in the pouch milk market leaves little room for corporates. Companies such as Nestle and Britannia are focusing their energies on the value-added segment instead. ?That?s where the margins are,? says Mayank Trivedi, general manager, dairy division, Nestle India. ?We are accountable to our shareholders. We can?t drive volumes at the cost of profitability. The latter counts,? he points out.

Pricing of value-added products is an indicator of how profitability is derived. A one-litre can or carton pack of UHT milk, for instance, is available for anywhere between Rs 33-40. Pouch milk is much cheaper in contrast, which puts pressure on manufacturers to drive volumes.

?In the value-added space, volumes are lower, but net price realisations are better,? points out Harish Bijoor, chief executive officer, Harish Bijoor Consults. ?Corporates find this model exciting, which is why they have opted to play in this space.?

As disposable incomes grow and general health consciousness improves, corporates are banking on the eventual shift to value-added products by consumers. ?The shift is already happening in urban households,? says Trivedi of Nestle. ?Upper middle class households are opting for safer options to pouch milk since it can be adulterated so easily. UHT milk can be stored up to six months. This is an added advantage,? he says.

Nestle, whose dairy business is about Rs 1,200 crore in India, has marked its presence in UHT milk, yoghurts (dahi, jeera raita etc), milk powder (Everyday), milk cream (Milkmaid) etc. ?Everyday is the largest dairy whitener in the country clocking sales in excess of Rs 550 crore,? says Trivedi. ?Its closest rival is Amulya from GCMMF, which has a turnover of about Rs 400 crore.?

Britannia, on the other hand, has a strong presence in cheese. It is also in the butter, dahi, ghee and dairy whitener segments. The company, meanwhile, is test marketing flavoured milk in markets in and around Delhi.

In fact, Britannia is taking its dairy business, which has a turnover of about Rs 200 crore, very seriously. It is now single-handedly managing the business following its recent buyout of the stake of its foreign partner Fonterra in the dairy joint venture floated by the two a few years ago. ?With complete control of the business, Britannia will be able to pursue its strategy of growth in the segment. It needn?t have to worry about managing joint venture partners etc. This will obviously help the company in taking its business objectives forward,? says an analyst with a brokerage firm in Mumbai.

Then there is Britannia?s one-time-ally-turned-foe Group Danone SA, which is preparing to get into the dairy space apart from baby foods, beverages, cereals etc. Danone and Britannia had a dispute going for two years over issues concerning the former?s allied investments in India besides a patent row over the latter?s Tiger brand. The matter was settled by the two in April this year paving the way for Danone?s long-awaited solo entry into the country. It has been quick to act following the April settlement seeking permission from the Foreign Investment Promotion Board to invest in India.

In the meantime, Reliance Retail is also said to have inked deals to procure milk from farmers. ?The challenge in dairy products is to manage the cold chain effectively. That is because most of these products have a very short shelf life. If that is done your business can grow,? says Ramanathan of KPMG. Typically, at the retail end, organised players do invest in refrigeration of products. ?The problem lies in between with the stockists,? says Ramanathan. By some accounts, the wastage levels in transporting and storing butter and milk is particularly high.

?These are products of daily consumption. If transportation and storage is managed effectively, it will surely help,? he adds.