Which are the largest drivers of the dairy market across India and how are consumer needs evolving across a variety of product categories in this industry?
This report on India’s dairy market seeks to present a comprehensive analysis, which will allow manufacturers to identify key demographic targets and opportunities to both increase sales and buying occasions for dairy products through their reformulation and positioning.
By better meeting changing consumption motivations, brands can innovate to provide products more suited to the differing consumer demands across a variety of sectors and ultimately increase profitability.
There are many reasons why consumers turn to dairy food and an equal number of reasons why they don’t. It is crucial for manufacturers to fully understand what consumers want from the actual products they purchase, and avoid marketing and promotion surrounding insignificant consumption motivations.
Major Consumption Drivers
Dairy foods in general are associated with having a natural and high source of calcium, protein and other healthy ingredients. Highlighting the functionality of products such as milk and
yoghurt and how they can aid with bone and teeth development in children will drive sales among younger consumers. Similarly, marketers should emphasise the health benefits of dairy
consumption to a rapidly aging population, and innovate to provide offerings fortified with calcium and vitamins.
New product innovation to meet evolving consumer motivations is also driving consumption across the dairy market, as manufacturers seek to tailor products not only to individual taste preferences but also for meeting a variety of specific health-based needs. Innovation in niche categories such as puddings and desserts and cheeses specifically formulated for the Indian market is driving sales and resulting in increased growth in these categories.
With life becoming increasingly busy, there is a growing demand for more convenient packaging. Manufacturers should therefore continue to innovate in providing robust, easily transportable
products. This will encourage consumption in niche categories such as yoghurt, which can be positioned as an on-the-go snack for both adults and children, while offering functional benefits to younger consumers.
An increase in the levels of snacking will also drive demand for more convenient dairy products, as time-pressed Indian consumers seek products that save them time and offer on-the-go mealtime solutions.
Responding to Consumption Inhibitors
To identify key drivers of consumption across the dairy market, it is just as vital to ensure that products overcome inhibitors to encourage higher levels of sales. Due to concerns over cold-chain storage during transportation, and the lack of readily available refrigeration across India, some consumers have negative perceptions of the overall quality of dairy products.
In a category where cold storage is vital, India’s per capita consumption of packaged dairy products is low compared to the US, Europe, and other emerging markets such as Brazil, Russia, and China. This is largely due to the prevailing consumer preference for fresh, unpackaged milk and dairy products, which are purchased from local dairies and neighbourhood convenience stores. This highlights the opportunity for marketers to target this large un-tapped potential market by communicating the freshness and quality of packaged dairy products, which are still perceived to be of lower quality than unpackaged dairy products, especially in rural India.
Targeting Growth Across Categories
The Indian dairy market witnessed growth at a CAGR of 7.6% in value terms over the period 2008–2013 and is expected to grow at a CAGR of 9.7 per cent during 2013–2018, to reach INR743.0 billion in 2018. This rapid increase, second only to Russia globally, is being driven by rising levels of disposable income, increased urbanisation, and growing health and wellness concerns among the Indian population.
Volume consumption grew at a CAGR of 5.1 per cent over 2008–2013, due to increasing demand for packaged dairy products among Indian consumers. Due to the significant vegetarian population, which is largely dependent on dairy products to meet its protein needs, marketers can promote why it is necessary to include dairy as part of a balanced, nutritious diet.
Furthermore, as an increasing number of the large working population in the country turns to packaged dairy products for quick, convenient, and nutritious food options, brands should promote how products such as cheese bring moments of de-stress in our increasingly busy lives.
Across all age groups, there is no single group that either significantly under- or over-consumes dairy products. This is a reflection of how consumers across differing ages and life-stages (either with or without children for example) all have some degree
of dependability on natural, healthier products, which have become a part of our daily diets, of which milk consumption is an important ingredient.
The fact that consumers under the age of 15 marginally over-consume dairy highlights the importance of milk consumption at an early age. However, as consumers age, consumption of dairy products decreases and there is under-consumption among consumers between the ages of 16 – 44. A similar pattern is also witnessed for consumers aged 55 and over, with under-consumption at 1.3 per cent.
Frequency of dairy product consumption decreases marginally as age increases and marketers can target different age groups by introducing age-specific dairy products addressing age-specific consumer needs. There is a significant decline in frequency of consumption among older young adults and pre-midlifers as dairy becomes a smaller part of their overall diet. This indicates an un-tapped potential market of busy working individuals.
Similarly, older consumers eat dairy less frequently due to the positioning of products more for children’s nutritional needs. This indicates a gap in marketing dairy products to older adults, who may restrict their use of dairy due to concerns over fat content and over perceived unhealthy attributes in categories such as cheese.
Primary Consumption Motivations
The Indian dairy market as a whole is largely driven by milk, which accounts for 97.4 per cent of the market by consumption volume. Yoghurt follows with a 1.6 per cent share, highlighting the importance of the milk market as a whole and also identifying more niche categories with high growth potential.
Age is the most influential motivator in the Indian dairy market, with more than half of all dairy consumption by volume being driven by consumers seeking products that meet their age-based needs. With one of the youngest populations globally, marketers should look to target the age-based needs of India’s growing youth consumer-base. The desire for products, which meet the age-needs of consumers, motivated US$1.8 billion of dairy consumption by value in 2012 in India by consumers who are 15 years and below, making this age group a highly lucrative cohort for manufacturers to target.
Consumers in this age group look to dairy products for multiple nutritional benefi ts, such as calcium for building healthy bones and teeth, with 300ml of milk providing their daily requirement of 350mg of calcium.
Indian consumers will continue to see the primary role of dairy as fulfilling the nutritional requirements that come with their age, as well as meeting the needs of fast-paced urban lifestyles. Urbanisation and migration – currently ranked seventh as a dairy consumption motivator by Canadean – will have a growing influence over product choices in India along with the fast-growth of major Indian cities such as Mumbai, Delhi, Bangalore, and Hyderabad creating a polarisation of wealth amongst consumers.
Urban workers with rising disposable incomes will opt for more expensive value-added dairy products, such as fortified milk drinks, which offer an energy boost after a tiring day’s work. The growth of service sector companies in India’s cities will continue to drive consumers to migrate from villages, towns, and smaller cities in search of jobs.
Moreover, infrastructure development in urban areas will help the distribution of dairy products, leading to a diversification of packaged dairy options available. Enjoyment of personal space and time is a significant need among Indian consumers and a desire to find products that meet this need will influence almost a third of dairy consumption.
Rapid urbanisation is driving a desire among consumers for products that allow them to relax and recapture valuable me-time from busy work schedules and the fast pace of urban life. Consumers look to dairy products in particular for indulging in moments of escapism and comfort, which bring back the nostalgic links to childhood.
With the demands of urbanisation and the pressure on working people to succeed, consumers will continue to seek out moments of escapism to enjoy personal space and time. As concerns about being overworked and overstretched become more pervasive with consumers fi nding themselves feeling tired and anxious, there will be a higher reliance on products that promise a coping mechanism to get consumers through everyday life.
The Indian dairy market will continue to experience high demand for creamy, indulgent dairy products, which help consumers to relax and unwind. Demand will also be high for traditional treats such as dahi yoghurt and lassi yoghurt drink, which help to take consumers down memory lane of their childhood days associated with the simple pleasures of eating dahi and slurping lassi.
The desire for individuality in dairy products will continue to drive consumption choices with Indian consumers opting for products that suit their flavour preferences and dietary choices, such as organic and ‘slim’ products.
Secondary Consumption Motivations
The desire for getting better value is another influential motivator influencing dairy product consumption in India. In an effort to remove the affordability barrier for India’s poorer consumers, manufacturers such as Mother Dairy are launching small unit size products at ultra-low prices.
For example, Mother Dairy’s ‘Chhanch’ (a spiced buttermilk and yoghurt drink) was launched in Kolkata in 2013 priced at five rupees. Manufacturers are also meeting consumers’ need for value with milk products packaged in small quantities of 250ml or less in polythene sachets. These single-use sachets are more economical than the traditional glass milk bottles, helping manufacturers to pass the benefits of reduced transport costs due to lightweight packaging on to the consumer.
Private label penetration remains low in India – below 5 per cent in any dairy category – as despite the cost savings private label offer Indian consumers prefer to opt for known brands in an environment where scandals related to adulterated milk are fairly common.
Branded packaged products will face intense competition from un-packaged loose dairy products available at local dairies in the short to-medium term; these products are lower-priced than branded dairy and consumers associate their freshness with quality.
However, as modern retail formats become increasingly dominant in India and cold-chain networks solidify, reluctant consumers will become increasingly receptive to packaged dairy products where marketers can communicate their value proposition and price advantages. With India’s sustained economic growth, higher income consumers can be encouraged to trade up to value-added dairy categories such as cheese and yoghurt.
In terms of dairy consumption that is motivated by trust, India ranks third globally, behind China and Brazil. Product trustworthiness remains a moderate influence over consumption behaviour due to high-profile concerns around adulterated milk products in the country. As a response to Food Safety and Standards Authority of India’s 2011 findings of large-scale sales of adulterated milk across the country, in January 2014 the Indian Supreme Court asked the government to take strict measures to curb the sale of adulterated milk across India. In an environment of adulteration scandals, Indian consumers have diminished trust in the safety of dairy products from unknown producers and are drawn to products from manufacturers with strong brand equity, as well as to products with certified purity.
While a desire for trust in dairy products will not be a primary motivator for Indian consumers, communicating safety as a facet of good quality will help to drive consumption among those who are resistant to packaged dairy. A perception persists among Indian consumers that packaged dairy products are of inferior quality to farm-fresh unpackaged dairy, and that they may be adulterated with undesirable substances. Manufacturers can look to overcome this view by labeling products with the agricultural source and date of origin, as well as emphasising the freshness and safety of the product and packaging.
Tamper-proof and tamper-evident packaging will also find success in communicating the quality of goods, as they allow consumers to evaluate that the product is in optimum condition.
Differing Consumer Motivations
The cheese and butter & spreadable fats categories are expected to record the highest growth over the period 2013–2018 at CAGRs of 9.8 per cent and 7.8 per cent, respectively, as their small market size offers larger room for growth. It is important that manufacturers target these rapidly growing categories as early entry and an increase in brand awareness can result in brand loyalty, particularly in smaller categories with reduced competition.
The increasing demand for more western food dishes, which include dairy, means that marketers must ensure the correct positioning of their products to meet differing consumer needs across a range of dairy sectors. The desire for getting better value is much more influential in the cheese category, and manufacturers should respond to this need by innovating with smaller pack-sizes to appeal to lower-income households.
As refrigeration and cold storage is still a challenge across much of India, particularly in rural environments, providing single-serve options would meet the desire for value in terms not only of price, but also of product longevity. In the yoghurt category, the desire for convenience is a primary consumption motivator as busy working consumers increasingly seek portable, on-the-go options to save time.
By providing robust, easy to transport yoghurt options, manufacturers can drive growth among a large, working demographic. In the dairy desserts category, the elements of fun and enjoyment have a major influence on consumption. In this niche market, marketers must focus on highlighting the taste and new experiences offered by their products to appeal to young consumers seeking novel, indulgent flavours.The disparity in consumer motivations emphasises the necessity of diverse strategies across a range of markets. Through a better understanding of consumer needs, manufacturers can drive sales in these burgeoning dairy markets, and early entry coupled with the correct positioning, will lead to brand loyalty and increased profitability in a market with huge potential for growth.
Meeting Evolving Consumer Needs
Ultimately, success in the dairy market will rely on meeting evolving consumer need states in a variety of categories. While milk currently accounts for such a large percentage of the dairy market, it does not mean there are not vast opportunities for growth and profitability in other categories.
India’s growing population, a rise in levels of disposable income and desire for more western products is driving growth in categories such as cheese, yoghurt and dairy-based desserts. The large, young demographic of the country seek dairy to meet age based needs, and manufacturers across all categories must ensure they focus on this in their product ranges.
However, the diversity of consumption motivators in different categories means that specific positioning and formulation should be used to appeal to consumers. It is only through a
comprehensive understanding of actual consumer needs that manufacturers can drive growth in smaller categories such as yoghurt and cheese.
Innovation should not be restricted to these niche markets, however, as continually evolving consumer needs will change the landscape of the milk market, along with dairy as a whole. To ensure on-going profitability and sustained growth, it is vital for manufacturers to meet these changing consumption motivations and use this knowledge to provide the products that consumers desire.