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Increased investments in India’s dairy sector is driving competition

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Dairy is witnessing consistent growth in the consumption of value-added products such as flavoured milk drinks, lassi, curd and yoghurt. The Indian dairy market, though dominated by cooperatives, is also witnessing increased interest from financial institutions as an investment destination. , Senior Research Analyst – Food & Nutrition at Euromonitor International and , Research Analyst – Food & Nutrition at Euromonitor International talk about the trends and developments influencing the dairy industry in India and prospects ahead for its different product segments.

Increased investments in India’s dairy sector is driving competition
Euromonitor International’s dairy coverage includes retail sales of packaged drinking milk products, butter, cheese, yoghurt and sour milk and other dairy products

Give us a sense of the broad segmentation of the dairy market in India – the size of the market overall and the volume and value share of the products in India’s dairy market? How is the market size of the dairy category growing in India in recent years?

Euromonitor International’s dairy coverage includes retail sales of packaged drinking milk products, butter, cheese, yoghurt and sour milk and other dairy products. As an exception, unpackaged hard cheese, such as Cheddar, Edam, Parmesan and Gouda, is also taken under consideration. We have also included soft cheese (paneer) in our coverage. However, the majority of cottage cheese produced is sold in unpackaged format.

The Indian dairy market recorded a 16 percent year-on-year value growth, through 2013-17, in line with the growth of fresh milk. Besides the shift from unpackaged to packaged, increasing health consciousness and awareness is driving growth. Consumers are increasingly shifting from carbonated drinks or drinks with high amount of sugar content, towards healthier alternatives such as milk.

To cater to these shifting consumers’ preferences, the manufacturers have expanded their range of value added dairy products, such as flavoured milk drinks, lassi and yoghurt, which are a better and healthier alternative, to the traditionally available carbonated and sugary drinks.

Value-added milk products, such as flavoured milk drinks, buttermilk, lassi, yoghurt and curd, also witness a huge spike in demand during summer season in the country. As a result, the industry is expected to witness a high growth momentum soon, primarily guided by improved distribution capabilities and operational efficiencies, which will ensure the availability of milk and milk-based products catering to the rising consumption pattern across the country.

How do you look at the outlook and prospects ahead for the category – which product segments will gain more of market traction?

Even though milk is a mature category, yet, the prospects look extremely promising in the future. Dairy is witnessing consistent growth in the consumption of value added products, such as, flavoured milk drinks, lassi, curd and yoghurt, which offer better alternatives as compared to carbonated beverages, because of rising health awareness.

Even the central and the state governments are supporting consumption by promoting initiatives, such as Mudra scheme to provide soft loans to dairy farmers to increase milk production or making consumption of fresh milk mandatory under midday meals schemes in government schools.

Major growth driver includes:

Increased health awareness: The modern consumer is very aware about their health and is reducing dependence on the traditional carbonated drinks and migrating to healthier alternatives. As a result, and Coca-Cola India Pvt Ltd, have witnessed considerable headwinds in carbonated beverages and are experimenting with new products, such as sugar-free drinks or non-aerated beverages to drive their organic growth and maintain their footprint in the Indian market.

In fact, products such as cow ghee and cheese are perceived to have significant health benefits over other cooking fats, such as Vanaspati or ghee. Consumers are increasing purchasing such products and which is contributing to growth.

What are the new trends and developments within the category?

Healthy Living: Healthy living is gaining precedence among consumers, and the demand for health and wellness dairy products is constantly on the rise. Other than the growth in milk and milk products consumption, even the growth of fortified milk products has been looking promising.

The Food Safety and Standards Authority of India’s (FSSAI) made it mandatory for milk producers to add more vitamin A and D to packaged milk products, and even private players, such as Nestle SA, have already started implementing the suggestions.

According to , with the rising per capita consumption of milk at 360 grams per person per day in 2018, up from 110 grams in the late 1970s, and expected to touch 800 grams in a few decades, these initiatives will ensure that the nation is able to decrease the population of malnourished in the country.

Dairy is attracting increased investments: The Indian dairy market, though dominated by cooperatives, is also witnessing increased interest from financial institutions as an investment destination. For instance, KKR India, local arm of the New York-based buyout entity KKR & Co. Inc., had invested Rs 6,000 million in Kwality Ltd., a major producer of dairy products with the ‘Kwality’ brand. The Lactalis Group of France, had invested Rs 1,7500 million and Rs 4,700 million in and Anik Industries Ltd., respectively. Cargill Ventures also invested Rs 1,100 million in .

These investments are driving some competition in the Indian market, promoting private sector players and co-operatives to revamp their strategy, and invest in brand building, expansion, direct procurement and distribution. As a result, Heritage Foods Limited spent approx. Rs 750 million in brand building exercise, while Gujarat Cooperative Milk Marketing Federation, producer of the Amul brand of dairy products, had plans to invest Rs 30,000 million by 2020. . and have invested Rs 640 million and Rs 400 million on strengthening their industry presence.

Furthermore, Gujarat Cooperative Milk Marketing Federation recently announced plans to expand its footprint to through the franchisee model, whereby, it would lease out is brand name to individuals and small businesses, against a small fee. This would further enable them to achieve sales as the small initial investment (approx. half a million in local currency) and store space remains very small.

Premiumisation: This is another major trend as consumers are increasingly demanding products having high quality ingredients, exotic flavours and sold in innovative packaging.

The market has witnessed growth in butter in different flavours, such as garlic flavoured butter and choco butter spread, which are priced higher than the normal butter. Premium international brands, such as President, are also launching different variants of butter, such as unsalted and butter with crush garlic, to expand their footprint in the Indian market. These are priced slightly higher than the usual butter available in the Indian market.

The market is also witnessing demand for premium variety of cheese, such as mozzarella, emmental, and leerdammer.

Which are the new products for which demand is growing? How is the category is growing in terms of assortment, new products?

With the increased adoption of western foods both in foodservice as well as in day to day cooking at home, the demand for international and non-conventional cheese varieties has grown. According to Euromonitor International, spreadable processed cheese, has been growing at 24 percent year-on-year in value terms 2013-17.

The market has been witnessing new product launches in cheese. For instance, Parag Milk Foods Ltd. launched ‘Go Cheese Cubes’, with zero preservatives and high calcium and milk protein content in 2018. In the last quarter of 2017, even Prabhat Dairy Limited announced plans to launch new cheese and soft cheese products.

What’s exciting is the increased availability of flavoured cheese such as pepper flavoured packaged cheese. The Indian market is witnessing demand for artisanal cheese. There are several cheese farms spread across India, which manufacture European artisanal flavours, such as Montasio, Edam, Feta, two kinds of Gouda, plain and pepper and a Camembert-style cheese for local consumers.

Non-dairy cheese varieties are catching up too. For instance, Violife, a Greece based cheese manufacturer, launched vegan cheese in India in 2018. Sold in different variants, these are indistinguishable from their dairy counterparts, and highlights Indian consumers’ intent to transition to healthy food habits, i.e, moving away from meat-based food habits.

What is the contribution of the category to overall sales and to the processed food section; Is the shelf space for the category increasing over the years?

The contribution of cheese to the overall dairy category is very low. It is primarily dominated by soft cheese (paneer) with the major consumer being the unorganised sector, where freshly made paneer is prepared every day and sold in unpackaged format.

While cheese contributed almost 3 percent to the overall packaged food retail sales, the growth potential is promising for this category in India.

The increased use of cheese in consumer foodservice is also expected to contribute to increased sales of cheese. Cheese remains an important ingredient in American, Italian, European fast food and foodservice in India. According to Euromonitor International the Pizza and Burger fast food value sales in 2017 itself grew by 24 percent and 12 percent respectively.

Expansion of foodservice outlets, such as Dominos, , McDonalds and , will further drive the consumption of cheese in India, as cheese forms a key component of their food menu.

Cheese is also increasingly capturing shelf space and enhancing its visibility. Modern retailers, along with super and hyper markets, tend to have huge shelf space for cheese. Cheese varieties attract attention of consumers looking to make international food varieties at home. Independent grocers and retailers (kirana stores) do sell cheese in smaller packs, or slices, which are comparatively cheaper than the premium cheese variety. Premium and artisanal cheese is only available in selected super and hyper markets and in gourmet stores. Right distribution channel remains key to expanding the product reach of cheese.

Which are the brands that are gaining ground in dairy segment and the reasons thereof?

Amul brand, owned by Gujarat Co-operative Milk Marketing Federation Ltd will continue to lead the overall dairy market. With best supply chain the company ensure steady supply to distributors and has maintained a strong foot hold in the market through its single brand strategy. Amul has also been involved in product innovation and has launched more than 50 new products in the last four years. The company is aggressively expanding its milk processing capacity over 2011-2017 and has a target to achieve 20 percent CAGR growth over 2018-2022.

Mother Dairy brand from National Dairy Development Board grew by 18 percent during 2018 in the dairy business. The company embarked on extensive exercise to redefine its brands into three basic segments Healthy Basics, Health Plus and User Driven Segments. The strategic business unit positioned the brand high in the consumer’s consideration and making the brand more noticeable.

Which new niches can offer fresh opportunities for the manufacturers?

Margarine with a low base of sales will continue to maintain double digit growth rate in the future. Since, it is considered to be a cheaper alternative to butter, the demand for the product primarily comes from small, roadside, eateries and other small-to-medium sized restaurants. Vanaspati which is a famous Indian margarine is quite popular in the Indian households for making sweets.

Cream, coffee whiteners are some of the categories which are quite unexplored products in India. Coffee whiteners and cream are majorly used in institutions, hotels, restaurants and cafeterias while the retail consumption is very negligible. Since, India has abundance of milk these products have low demand. However, coffee whiteners are immensely used in mid-day meal programs in schools and to make traditional Indian sweets.

Which are the areas that brands should focus on for their own and category growth?

Some of the area they can focus on are:

Health and wellness: Brands should focus on addressing the specific needs of consumers by launching more of health and wellness products. For example, low fat milk and low-fat cheese should not only suffice the need of consumption but should also beneficial to health. Maintaining the balance between indulgence and healthy is of prime importance for the future growth dairy.

Right product positioning: Brands should focus on marketing their products to the right audience. For example, launching specific flavoured milk targeting the kids and adults will give good brand exposure. Spoon-able yoghurts as desserts for kids and drinking yoghurt with low calories for health-conscious consumers will be an effective product positioning.

Pack sizes: Products such as cheese and yoghurt are priced high, and many price conscious consumers often want to try before they buy. Hence, smaller pack sizes with low price points would be ideal for trial. Britannia Industries Ltd, Milky Mist Dairy Ltd and many companies have cheese slices sold at Rs 66 for a pack size of 100 gm are very popular in India as trial packs.