The milk production in India is expected to cross 200 million tonnes by 2016 from the current 125 million tonnes. Here is a glimpse on the ongoing trends in the Indian dairy industry and the opportunities available for investors as a dealer or distributor
Gone are the days when milk was sold by vendors door to door every day morning. Now consumers can have milk through vending machines and ATMs as per their ease. The increasing demand is further widening the scope for investors who are playing major role in the Indian dairy supply chain. In addition, the new marketing and selling practices are also rising in the industry. These budding practices are catching the eye of investors who are looking for a profitable business opportunity with the Indian dairy industry key players. They are continually revising their supply chain and looking for potential channel partners (including dealers, distributors and franchisees) to accomplish the demand of their customers.
A dynamic market
Milk is India's biggest agricultural produce. It is contributes 22 per cent to the total agricultural GDP (Gross Domestic Product). According to a report by the Investor Relations Society (IRS): “The current size of the Indian dairy industry is about USD 70 billion including both organised and unorganised sectors and it is expected to double to USD 140 billion by 2020.” The industry is now re-emerging and ready to adapt new trends. The trusted key players like Amul, Mother Dairy, Kwality Dairy, and Umang Dairies etc. who have more than 70 per cent of the total market share are rewarding their investors including dealers, distributors, and retailers with the profit share. Whereas, the entry of many other national and international players is challenging the monopoly of the traditional milk cooperatives and now forcing them to launch alternative dairy products to continue their hold on the market. “With changing lifestyle and urbanisation, the Indian consumer is shifting from plain milk to alternative milk products, so the market for alternative milk products is very promising,” says R S Sodhi, Managing Director at GCMMF Ltd (Amul). Amul is a homegrown dairy brand from Gujarat. It is following four distribution channels and recently has introduced the concept of the super distributor. Sodhi says, “Under this concept we identified 200 districts and added a super distributor to each of the districts. This super distributor would then cover 15-20 small towns.” In past one year, Amul has added 3,000 more towns and cities to its distribution network to deliver its products across the country.
Supply Chain management
According to Devendra Shah, Chairman, Parag Milk Foods Pvt Ltd, “Consumer education about dairy foods which are more nutritious is increasing. So the demand and supply is also increasing.” But due to the market size, milk producers cannot sell their products directly to customers, thus a number of intermediates enter in supply chain. Shah adds, “To fulfill the consumers demand, the Indian dairy industry has come up with new positive measures. It has streamlined its demand-supply chain and have taken many measures to motivate investors as they deliver milk products to customer's doorstep and play a very important role in milk supply chain.”
Renowned players like Amul, Mother Dairy, Nestle and Britannia have strong distribution system across India. Whereas, Parag, Sudha, Verka, Vita and many more brands are planning to break the regional barriers and are looking at expanding their supply chain beyond regions. Most of them are following dealer distributor model for delivery of their products.
Dealers /Distributors- a feasible business model
Distributorship/dealership is a very important part of the dairy industry. Shah says “Of course it is a feasible model for any dairy company as company can't reach to the consumers' doorstep personally. The route covers the activities like purchase of products, transportation from suppliers to ware houses and delivery to customers' doorstep.” Parag Food as a company constantly innovates and comes out with exciting products. It has two processing facilities with the capacity of 20 lakh litres milk per day. Parag Food, being conservative player has established itself only in five big cities Delhi, Mumbai, Bengaluru, Hyderabad and Pune so far. Shah informs, “We distribute our products through 60 super stockists, 1700 distributors and over 1, 25,000 retail outlets. He says “We are strong in west and we are focusing on North and East. There is a tremendous potential for our products both in the domestic and international markets and in the coming years, we will look at creating the infrastructure for our products on a pan-India level and reach out to newer markets and consumers.”
Another key player, Amul has more than 7,000 dealers and distributors across India. About its future expansion plans Sodhi says, “We have our distribution network in all tier I and II cities of India. We are in the process of expanding our distributor network to all tier III cities and are seeking potential partners.” Amul's wholesale dealers and distributors supply the entire range of Amul products at one shop. Its product portfolio includes dairy products, pouch milk and ice-cream range with a variety of products. Similarly, Mother Dairy, a wholly owned company of the National Dairy Development Board (NDDB) manufactures, markets and sells milk and milk products through its sales and distribution networks across India. It markets approximately 32 lakh litres of milk daily with their presence in Delhi and NCR, Mumbai, Tirupati, Hyderabad, Chennai, Lucknow, Kanpur and Jaipur through a robust network of over 1,000 exclusive outlets.
Bihar State Milk Co-operative Federation Ltd (COMFED), which is selling milk product by the brand name Sudha is procures about 15 lakh kg of milk everyday from more than 15,000 dairy co-operatives. It is a household name in Bihar and Jharkhand and its products are also available now for the consumers of Delhi NCR, Haryana, Uttar Pradesh and Uttarakhand. COMFED has ambitious plans of procuring 44.0 lakh kg of milk by 2017. The work on infrastructure development is going on at a rapid pace and it is poised to serve consumers of other states also. Presently it has 338 distributors for delivery of milk on a daily bases whereas its products are available on over 10,000 retail points. It is in process to reach in other states for easy delivery of its products. Besides it also supplies milk in bulk to brands like Amul, Mother Dairy and Delhi Milk Supply Scheme etc.
Requisite for potential dealer/distributor
As per industry leaders, selection of a right dealer/distributor is of utmost significance for achieving the objective in the Indian dairy industry. Experience of the distributor in same industry is a great advantage because it will take less time in understanding the functioning of various members of the channel. However for Parag Foods prior experience in same field is not necessary. Shah says, “The person who is capable of doing business is the only criteria to get a distributorship / dealership with our brand.” He adds, “We organize product induction training programmes for our channel partners where we train them about how to manage the stock, what should be the temperature in which different products should be kept (in case of refrigerated products) in order to ensure that quality products reach consumers.” “We keep in touch with them regarding our annual target of volume and value of products etc.” Sodhi concludes. Other than these characteristics, a distributor should be financially strong to buy and supply huge dairy product range. Including that he should be able to invest in infrastructure, new products and new initiatives of the companies without expecting immediate returns. He also needs to stock the required products in bulk quantity and provide credit (no. of credit days based on the requirement) to the retailer and institutions.
Although the Indian dairy industry is growing very fast but as an investor you have to face many challenges because of unorganised business practices and lack of awareness for milk's health benefits. To ensure the interest for dairy farming among the young generation is another biggest challenge to face. As per a spokesperson from Crown Milk, “Young generation is no longer interested in milk and milk related business practices and which is affecting the milk production and its consumption.” Besides dairy products are perishable in nature and needs to follow high packaging techniques to keep them for long.
Indian dairy Industry- At a glance