Despite India being the largest milk producer and consumer, 78 percent of the market is still unorganised and that explains ITC's foray.
Sounak Mitra
ITC Ltd, which launched packaged milk and yogurt in its home market Kolkata on October 30, said it is planning to ramp up presence in the dairy market with value-added products, including milkshakes, nationwide. This is part of the firm's diversification strategy to generate Rs 1-trillion revenue from non-cigarette packaged good business by 2030. Of this, around 65 percent, or Rs 65,000 crore, is targeted from food products. Currently, the non-cigarette packaged goods business accounts for 25.77 percent of its Rs 43,956.90 crore total revenue from operations (FY18).
Despite India being the largest milk producer and consumer, 78 percent of the market is still unorganised and that explains ITC's foray. Organised dairy sector accounts for 22 percent, or around Rs 1.2 trillion, but is projected to grow to Rs 2.5 trillion by 2020, according to a study by The Trust Group.
But it may not be smooth going for the new entrant in a hyper competitive market.
The organised part of India's dairy market is dominated by Gujarat Cooperative Milk Marketing Federation Ltd, that owns the Amul brand, which reported revenues of Rs 29,220 crore in fiscal 2018. Other key players include Nestle India Ltd and Britannia Industries Ltd that have a nationwide presence. Moreover, each region is dominated by well-entrenched local players such as Mother Dairy and Kwality in the north, Prabhat and Parag in the west, Hatsun and Heritage in the south, and Metro and Mother Dairy in the east. Besides, there are strong co-operatives brands such as Nandini in Karnataka, Vijaya in Andhra Pradesh, Verka in Punjab, Saras in Rajasthan, Milma in Kerala, Gokul in Kolhapur and Sudha in Bihar.
That's not all. ITC is not the only big firm eyeing this segment. The Kolkata-based firm will have to compete against multinationals like PepsiCo and Coca-Cola in the value-added segment, which includes ready-to-drink milk-based beverages, flavoured milk, fusions of milk and fruits, frozen desserts, besides Indian drinks such as chhaas and lassi. Plus, there’s Baba Ramdev’s Patanjali Ayurved that has also ramped up its dairy portfolio with a bunch of milk-based products. Simply put, the competition is too stiff.
India's dairy market, often referred to as white gold, has never been easy to crack. Danone, which is among world's top dairy companies, finally decided to exit the business in January this year after three failed attempts. PepsiCo has had limited success in penetrating the value-added segment. Coca-Cola's first attempt did not work, and the company has reworked its product portfolio hoping to get some traction in high-margin value-added dairy.
Co-operatives have been successful due to their deep-rooted distribution network, efficient procurement systems, proximity among milk producers, collection centres, processing units and end consumers. That’s one of the reasons why every region has one or two big players.
For a successful nationwide presence, ITC will have to build a strong sourcing-to-retail supply chain in each region, preferable every state. What could come handy for ITC is its understanding from the well-experimented e-chaupal, and blend that with product innovation.
Milk is an easily perishable commodity and ITC claims to have been researching on product development for about 10 years now to ensure quality and freshness. The challenge for ITC now is to efficiently implement that in each part of India.
Besides Munger in Bihar, ITC has set up a factory at Punjab’s Kapurthala that comes with the advantage of the milk supply chain of the state where Nestle also has its oldest and the largest milk processing unit.
In any case, ITC's long-term game is to crack the relatively high margin value-added milk-based products which has been growing the fastest despite being the smallest segment in the entire milk products category.
The firm has also said that its expansion will be done in a measured manner. By the time it will start selling milk and milk-based products nationwide, most of its planned 20 integrated factories will be operational. Considering locations of these factories, ITC can create 20 different hubs across the country to serve the whole of India as 20 different markets, at least for milk and milk products.
If ITC manages to develop that, it would be able to bring fresh milk to consumers at lowest possible time, ensure quality and bring region-specific or hyper local products. But until that happens, it would not be easy for ITC despite its strong retail network across kirana stores, modern retail and now e-commerce.
