With its right mix of product portfolio, educative promos, and aggressive pricing, Dr. Oetker Funfoods has, within a short period of time, become a household name in India. Oliver Mirza, Managing Director, Dr. Oetker India, talks with Juhi Sharma about the company’s long-term plans for the country
The Dr. Oetker brand has been present in India since 2006. How did the company set up business here?
We wanted to have a presence in the world’s two largest markets and the two fastest growing economies: India and China. Though we were present in Europe, North and South America, Africa and the Middle East, Asia was still an untapped market, and the Group’s vision was to become a global food brand.
We first set up a liaison office in India in 2006, and by the following year we had set up a shop in Mumbai, from where we began selling products sourced from our international basket. But starting a business based on imports has its limits. We analysed our success and strength in the countries we were operating in, and realised it was because we were developing food products based on local needs and preferences. With our business in India based on imports, we were not addressing the Indian customer’s preferences adequately.
We mulled starting a greenfield operation but since we wanted to reduce the entry and establishment time, we began to consider acquiring a food business as it would give us a jumpstart in the Indian market. While scouting for potential companies and brands, we focussed on companies selling ‘Western pleasure’ food; ones that were strong in (at least) one food category, and had an in-house R&D center. Also, we wanted that the company should have in place the supply chain for modern food and grocery retail, and for the food service sector.
Fun Foods fulfilled most of the criteria; their product portfolio comprised of mayonnaise, spreads, dressings and pizza toppings (Western foods all). On 18 December 2008, we acquired the company for Rs 110 crores. The acquisition gave us a presence across the length and breadth of the country as at the time, Fun Foods’ products were present in around 125 cities, and the brand was a major supplier to many QSRs.
In 2010, in alignment with our Executive Board Member for Global Marketing, Rainer Luehrs, we merged the Dr. Oetker brand with Fun Foods to create Dr. Oetker Funfoods. The merger, no doubt, deepened our India footprint, and since we believe in nurturing the brands we acquire, we decided to retain the brand name. Under the new Dr. Oetker Funfoods, we implemented the key labelling laws, and abided by the Prevention of Food Adulteration (PFA) Act, the Standard of Weights and Measures Act, and standardised the technical information on the labelling of all our products.
How important is the Indian market for your Group’s global business?
Following the merger with Fun Foods, for the next 5 years, we focused entirely on strengthening our position in the Indian market, and extended the brand’s reach to the retail channel as well as the food service sector. In retail, we have been rated No. 1 in our core categories by independent agencies such as AC Nielsen.
So, India continues to be a very important market for the future expansion strategy of Dr. Oetker’s food division. India is embedded in the 3A region (comprising of Asia, Africa and Australia), and is the number two country within this region. As mentioned earlier, we have seen sustainable growth in India over the past five years and our mission for 2020 is to be a Rs 500 crore brand in terms of revenue. India has a pole position for Dr. Oetker as our long term success in the country is crucial for the overall expansion of our food division.
What has helped Dr.Oetker Funfoods gain a sizable market share in India?
Currently, our product portfolio comprises Western, Italian, Mexican, and Asian cuisines, besides desserts, beverages, and muesli. Our best performing range is the Western cuisine, which includes mayonnaise, spreads, dips, mustard sauces, and salad dressings. Both Fun Foods and Dr. Oetker are strong brands in terms of product competency. Furthermore, QSRs have been popularising pizzas, pastas, and burgers for more than a decade, and Indian consumers now want to replicate this food at home. This is where we are seeing big demand for our products. Our mayonnaise, for instance, comes in seven varieties; the eggless was invented by Fun Foods keeping in mind the vegetarian consumers, and according to our retail partners, it is the best performing along with our Italian pasta and pizza sauces.
Our emphasis on quality and innovation is also our strength and the reason for our sustained popularity over the years. We use only imported oil for our mayonnaise, in fact, we are the pioneers (and, till date) the only manufacturer of olive oil mayonnaise in India. In our milkshake powders we do not use synthetic food colours nor flavours. All our products undergo a check with internationally accredited labs, and our manufacturing units are ISO certified.
We have also ensured affordability of our products. For instance, in 2008, the MRP of our mayonnaise was Rs 72, and since the last three years it was maintained ar Rs 75 (a nominal Rs 3 rise). In the coming month, we will increase it to Rs 79. This aggressive pricing has helped us pull many new consumers into the mayonnaise category.
How has Modern Trade helped the brand grow?
Our products are available across all big and small retail chains, kirana stores, and self serve neighbourhood stores. The definition of modern trade varies across the country; some define outlets with scanning check-outs as modern, while others define air conditioned stores as modern. We are told that there are just 3,000 modern stores in India. That aside, self service stores have definitely helped us reach our target group. We have observed that such stores tend to focus more on category development rather than on margins.
The reason we emphasise on self-serve stores and not modern store chains is because the latter have access to a huge shoppers’ data, which can be used to develop the categories in collaboration with the manufacturers (category leaders) under the so-called category management projects, but this has barely happened (in our categories) in the absence of their support.
Let me state an example: three years back, a national modern chain delisted us because we did not agree on their terms of trade. Our portfolio was reduced from 60 SKUs to just 3 SKUs, and shelf space was cut to half for a period of 4 months. The result was that these 3 SKUs generated 56 percent of the total turnover, which was earlier being generated by 60 SKUs. This actually shows that our products can achieve much higher sales and off-shelf velocity, if given proper shelf space. The sad part of the story is that though we got back into the retail chain with 50 SKUs, the shelf space did not get extended.
Modern trade chains offer self-service and so do many neighbourhood standalone stores that have modernised. The revenue share is heavily influenced by the categories being sold. The former tend to offer variety as a differentiator, whereas the latter stock products that are in actual demand. It’s ‘experience shopping’ against ‘necessity shopping.’ Across all our assortments, the revenue split is 60 percent from traditional retail and 40 percent from self-service stores. Our best performing regions are North, West, South and East.
How is the brand performing in the Food Service/HoReCa sector?
The food service channel is a very interesting channel for the Dr. Oetker Food Division. Even on a global basis, it is considered a core business. In Europe, for example, we supply deep frozen pizzas and pasta meals to QSRs, while the HoReCa channel sources ambient gravies, pasta sauces and dressings from us. We cater to ice-cream parlours mostly with ambient dessert toppings and fruit syrups.
In India, we supply ingredients to all leading QSRs and to the HoReCa channel. Burger and pizza QSRs prefer our mayonnaise, pizza and pasta sauces, dressings and mustards, whereas cinema chains love our salsa and the cheese dip. Coffee and beverage counters usually source fruit syrups (as base for Krushers), toppings and frappe powders from us. Italian restaurants source green and red pesto from us. Did you know that we are the only domestic pesto supplier in India?
The latest innovation is a bake-stable cheese spread that can replace cheese on the pizza. This product easily survives in ambient temperature conditions. For cinema chains, we invented a twin sachet filled with salsa on one side and nacho cheese dip on the other side. We could also fill it with mayonnaise on one side and ketchup on the other. A few years back, bulk ketchup was also part of the portfolio but we exited ketchup in 2012 as it had become a commodity. Even now, clients do not want to pay more than Rs 52 for a kilo of ketchup; but selling it below Rs 60 per kilo does not make sense for us.
Many of our clients assumed we would exit the food service channel just because we exited bulk ketchup. But hey, those who are declared dead live longer! Last year, the food service channel accounted for 40 percent of our revenues, and our clients love us because we do deliver variety in various sizes – our smallest batch size is 30 kg.
What is your marketing strategy?
Our marketing strategy revolves around ‘consumer education’ and ensuring on-shelf penetration. In 2013 we conducted a mega promotion by offering our Pasta & Pizza sauce with 150 gm of ‘free’ raw pasta. On the pack we explained in detail how the raw pasta is to be cooked, how the sauce it to be heated, and how both are to be brought together and tossed to create that real Italian Pasta Meal.
In April, this year, we launched a ‘free tin of fruit cocktail along with our mayonnaise’ offer with recipes by cookery expert Nita Mehta. The recipes include usage of mayonnaise with cut fruits in coleslaw and creamy fruit salad – served by several QSRs in the United States. Again the focus was consumer education.
In June we will launch the Season’s Special concept, which will rejuvenate the entire mayonnaise shelf, and we will introduce a different variant every season. The first flavour Tandoori, will be a fusion of rich Indian spices and European mayonnaise. The aim is to extend mayonnaise with a familiar Indian flavour to new consumer segments down the pyramid.
What are the operational challenges in India?
For us, it is the day to day operations to having multiple legislations governing the businesses…. Coming from an economy like Europe – with harmonised rules and regulations – it is a task to learn the regulatory framework of an emerging market. However, what I have understood is that there is logic and reason why laws have been framed the way they are. Multi nodal agencies and clearances should however be curbed, and the whole ecosystem should be more business friendly. We have huge expectations from the new government that they shall bring paradigm changes in the way business operates (especially on the regulatory side) and make the entire experience less complex and straight forward.
Please share your future expansion plans.
We have three operational plants, two in Kashipur and one in Bhiwadi. We are currently in the process of building a new master plant in Kaharani (near Bhiwadi), Rajasthan, which will have three times the capacity than all the existing plants put together. We have consistently enhanced capacities in the plants, which came with the acquisition. We went from single to double shift and we invested in automation. We brought in German ‘mayonnaise making’ machinery. In January 2014 we again increased capacities by another 45 percent in the three existing plants. Since acquisition we have more than tripled the capacities in the three existing plants. In parallel, we have started building a state-of-the-art-plant in Kaharani. This plant which will meet our production requirements till the year 2020. By 2018 we will start expansion phase 2 which will double capacity on the same plot.
As regards our distribution network, we are currently present in 195 cities; this implies that we directly service these cities through our sales reps. This presence is still more than any QSR in the country. The thought is not to increase the penetration by increasing the number of cities alone, but also to increase the number of outlets in the present cities. We have been aggressively doing this for the past two years due to which we have tripled our numerical distribution since the time of takeover. We have a steady 25 to 30 percent year on year growth, which we shall achieve this FY also.