The Indian dairy industry is at the tip of another major transformation. In its pursuit to become a developed dairy industry, India is marching towards a value-added dairy products market
Dairy and its various products have become an integral part of our lives and over the years, the dairy market has only become more attractive — thanks to the introduction of various value-added dairy products (VADPs). Now, exposure to almond milk or Greek yogurt is not limited to the rich class or international trips. As the dairy market expands, premium milk products are increasingly entering the fray.
However, for an overall dairy market that is currently valued at Rs 5 trillion, the premium milk category still accounts for only single digit revenue. According to a report by Frost & Sullivan, highly premium products such as branded yogurt, probiotic dahi, specialty cheese, etc hold the maximum margin potential for dairy companies and tend to be the focal point for private MNCs. For a sector which is mostly unorganised (about 78%), there has been a consumption and market shift towards high margin emerging VADPs.
This is clearly a move directed at going beyond the plain milk market to a VADP one, and from an unorganised and local industry to a more structured and branded market. Shradha Sheth, research analyst at Edelweiss Securities says, “Strong growth is driven by the transition from unorganised to organised and value growth is driven by inflation and higher penetration of value-added products.”
According to the latest report by IMARC Group, along with offering profitable business opportunities, the dairy industry in India serves as a tool for socio-economic development. Therefore, the government has introduced various schemes and initiatives aimed at the development of the dairy sector in the country.
Milking the opportunity
In recent times, value-added products have been gaining traction among customers due to apparent changes in demographic and dietary patterns. The premium dairy product market currently holds a share of 8-10% of the organised dairy industry and is expected to grow at a pace of 6-8% year-on-year; and reach a market share of up to 20% by 2021, as per reports.
Keeping in mind the current health trends, Drums Food International curated Epigamia Greek yogurt in 2015, to encourage a healthier lifestyle without negotiating on taste. “We originally launched Greek yogurt as a complementary business to the highly seasonal ice cream space. However, we received immediate traction and strong consumer interest,” recalls Rohan Mirchandani, CEO and co-founder, Drums Food International, while adding that the reason for the uptake has been the evolving and discerning consumer.
Today, consumers travel the world, experience products and services in the international market and wish to have the same from a domestic company in the Indian market. Take for example almond milk; something that wasn’t even heard of till a couple of years ago, is now gaining popularity among millennials. “Keeping in mind growing obesity and diabetes among Indians, we thought of launching a health drink — So Good Almond Fresh — which is 40% lower in calories than skimmed milk and delicious at the same time,” says Rohit Bhagat, business head, Life Health Foods India.
Hygiene too plays an important part in one’s choices these days. So much, that Parag Milk Foods, which enjoys a good share in the dairy market, launched premium milk range Pride of Cows.
“For Pride of Cows, initially we targeted only bureaucrats, celebrities, industrialists and socialites. Now, almost every household that likes to consume a hygienic, value for money product is our target consumer,” points out Akshali Shah, senior VP — strategy, sales and marketing, Parag Milk Foods.
The churning process
Apart from innovation, marketing and distribution too are vital to reach the correct TG. Currently available at over 3,000 stores across five major cities, Goodness! Beverages wants to increase its footprint to more than 5,000 stores by the end of 2018 across all major markets. “The discussion of the distribution model is always debatable. We have tried self-distribution, distribution through distributors and a mix of both depending upon the market,” shares Subhajeet S Roy, marketing and brand manager at Goodness! Beverages (DropKaffe).
Targeting consumers aged over 25 years in metros and other tier I cities, VADP companies agree that digital plays an important role in their marketing plans but do not negate the power of word of mouth. In an attempt to give consumers something new — whether through new launches, special events or brand collaborations — brands have tried various ways to reach out to new markets. The idea is to be available across as many locations as possible. For instance, earlier this year, Epigamia collaborated with a celebrity chef to showcase the diversity of Greek yogurt as a cooking ingredient. On the other hand, for Life Health Foods India, its association with supermarkets like Godrej Nature’s Basket, Star Bazaar, Aditya Birla Hypercity, etc, helps it to share the brand story and also helps educate shoppers on health benefits of non-dairy milk.
Having said that, the category has its share of challenges too. “Some of these include high level of investments required and the creation of a strong distribution network,” says Grant Thornton India LLP partner Dhanraj Bhagat. “Many of these players may not have a presence in the traditional market of milk, butter and ghee; therefore, customer acquisition for value-added products becomes much more challenging than if they already had customers for traditional products.”
Sheth adds, “Direct procurement is the biggest challenge; that is why Danone also shut shop in India.”
Not to forget, packaging plays a very important role, particularly for premium products. Hence, brands have to invest in innovative packaging which adds costs to a product. A report by ICICI Securities suggests that the key determinants of revenue growth as well as profitability for Indian dairies in the coming three to five years will be, firstly, strengthening direct milk procurement; secondly, the right product mix; and lastly, distribution expansion.