Say cheese, says the organised dairy sector

Rutam Vora & Vishwanath Kulkarni | HBL

The Sharmas in Delhi, like crores of other worried citizens, made several changes to their lifestyles to protect themselves as the Covid-19 pandemic spread across the country during the early part of the year. Among other things, the Sharmas switched over to purchasing packed and branded paneer (cottage cheese), which they traditionally bought from neighbourhood outlets, for fear of hygiene issues as the virus raged. A key source of protein for a large section of the vegetarian population, particularly in North India, paneer is among dairy products that are sold at corner stores and even by vegetable vendors in residential areas across cities and towns in the North.

Covid has brought about a shift in the buying pattern and many dairy players acknowledge food safety has fuelled a growing trend in consumer preference towards packaged and branded produce. This trend is seen auguring well for dairy players who are already into value added products. Also, this is expected to provide a push to the organised segment in the dairy sector.

India is the largest producer of milk in the world but its dairy sector is still dominated by unorganised players.

According to industry estimates, about 48 per cent of the milk produced in the country is either consumed at the producer level or sold to non-producers in rural areas. The balance 52 per cent of the milk is marketable surplus sold mainly to consumers in urban areas. The 2018-19 data suggests that of the total 3,210 lakh kg per day of milk production in the country, only 1,080 lakh kg per day comes from the organised sector, which is about 34 per cent, as against 2,130 lakh kg from the unorganised sector. In the organised space, cooperative and private dairies have almost equal share.

Shift in consumer preference
“Covid has been a blessing in disguise for us. Consumers have realized that packed milk, pasteurised packed milk are safe vis-a-vis the loose milk supplied by vendors. Dairy cooperatives need to have some strategies to capitalise on this shift in consumer preference. We will see the organised sector growing and the organised sector achieving 50 per cent share in total milk production is not a distant future,” states Dilip Rath, Chairman, National Dairy Development Board (NDDB).

“Post Covid time is positive for the food sector, especially for the packed, trustworthy and affordable brands,” says R S Sodhi, Managing Director of Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns the brand Amul. Over the past five months since Covid-19 struck, Amul saw its business of branded consumer products of butter, ghee, cheese and paneer doubling over last year. Sodhi looks at achieving 15-20 per cent growth in consumer dairy products, driven by demand from household segments for Amul products.

Like Amul, other large cooperatives like the Karnataka Milk Marketing Cooperative Federation (KMF), which sells products under the Nandini brand, have seen an uptake in value added products.

Private dairy brands have also experienced a sharp surge in home consumption of dairy products.

Home food made better
Says Devendra Shah, Chairman, Parag Milk Foods, which markets its dairy products under Gowardhan and Go brands, “Home consumption has gone up as against out-of-home consumption. Staying indoors and trying their hand at different varieties, people have realised the benefits of branded and trusted packaged products. Cheese recipes are gaining popularity and people are purchasing different varieties of cheese for home consumption.”

“Over the past six-seven months, people are constantly eating home food and have realised that home food, prepared with branded packaged products, is healthier and richer in nutrition value, therefore, we see the trend continuing, going forward,” Shah says.

Hence, the revenue mix for dairy products is also changing, with the consumer segment eating into HoReCa (hotel/restaurant/cafe) revenues, which was 45 per cent and consumer segment was 50 per cent for Parag. But now it sees the consumer segment hitting 70-75 per cent share in revenues. driven by cheese and other branded products.

This is prompting dairies to innovate with products suitable for home consumption. Parag, for instance, introduced a special cheese category for pizza preparations and a single-origin cow ghee was launched under the brand “Pride of Cows”.

Rahul Kumar, CEO of Lactalis India, says food safety and nutrition has been a key area for consumers, who were seen showing preference for packaged dairy products such as paneer and milk, among others.

To make packaged milk available for a large section of people, Lactalis India has launched a 65-ml pouch priced at ₹5 in Mumbai. “As the lockdown has hit people’s earnings and job losses have hurt purchasing power, we have introduced smaller packs to make it more affordable,” says Kumar.

Revenues from packaged branded dairy products have also shown an uptick. Amul sees its branded packaged products getting more value than its branded liquid milk, even as milk has bigger volumes than value-added products. This indicates that weightage of packaged branded products is growing in the dairy player’s balance-sheet, prompting dairy players to innovate with more such products for consumers.

For example, during the three months of lockdown, Amul introduced 33 new products, including immunity boosting haldi milk, haldi ice cream and tulsi milk, among others. “Usually it takes about three months to finalise and launch a product but, sensing the potential, Amul took just 30 days to bring these branded consumer milk products to market.”

Shift in distribution too
Apart from a shift in consumer preference for products, there is also a shift in distribution pattern for retailing of these products. Thanks to Covid, there is a revival in the general trade and push for e-commerce at the cost of bulk and modern trade (through malls).

Typically, modern trade generated 15-20 per cent of the total business, in some cities even 50 per cent. But Covid-19 has changed this with an increase in online trade through e-commerce platforms, which are buying directly from the companies. In the post-Covid scenario, Sodhi says, general trade and e-commerce have gained at the cost of modern trade.

NDDB Chairman Dilip Rath says, “Covid-19 and lockdown are temporary — once in a century — aberrations. The modern format of retailing through e-commerce and e-retailers will define the shift in distribution of milk products to consumers. It is more based on hygiene, avoiding handling by various people and instilling confidence in consumers regarding the products they purchase. E-commerce will help the cooperative and dairy industry in general.”

In a clear indication of trends, value added milk products are set to be the engines for growth, where investments are seen rising.

The Banas Dairy (Banaskantha District Milk Cooperative Union Ltd), one of the largest milk producers’ unions in Gujarat, believes that Covid-19 has unlocked multiple avenues for the dairy sector on the packaged consumer products front. Says the Chairman of the Union, Shankar Chaudhary, “Volumes for consumer packs will improve and only those brands that are committed to quality standards will get wider acceptability.”

Chaudhary further says that dairy players who have a wider product basket with more products will be able to penetrate more into the market. “The consumer taste and preference is also changing from dahi and shrikhand earlier to yogurt and cheese. Earlier there was only liquid milk available for consumers, now multiple varieties of liquid milk with different flavours is a new concept,” he says, adding that new investment avenues are being explored for untapped segments such as Indian sweets and cheese.

India’s milk production has been growing at a compounded annual growth rate of 4.5 per cent over the last 20 years, more than twice the global growth rate. The Centre has set its focus on doubling milk processing capacities to 108 million tonnes by 2025 from the current 53.5 million tonnes, fuelling investments in infrastructure development. But Covid-19 has opened new avenues in terms of packaged branded dairy products for the household consumer groups. This has led dairies to prioritise their investments in product innovation, and market development, including tapping the ecommerce platforms.

“Though India is the largest milk producer in the world, it has tremendous scope to include farmers from the unorganised sector in organised cooperatives. In fact, a survey of milk federations across the country during Covid reveals that non-member farmers had started to offer their milk to the co-operatives that could absorb all the milk due to their processing capacities. In some federations there is an increase in membership. Some cooperatives, due to their retail presence, have been able to expand and capture markets,” says Harekrishna Misra, Chair Professor, Verghese Kurien Centre of Excellence, Institute of Rural Management, Anand.

The share of the organised sector is bound to go up and the government should take note of it and pump in the promised investment from the ₹15,000 crore infra fund, which should give a further fillip to the sector, says Misra.