The Rs 9,000-crore ice cream market (including unorganised players) is in for an overhaul. As regional labels such as Arun, Cream Bell, Vadilal
Dairy International and Heritage
take on the might of Kwality Walls, Amul
and such others, the industry expects to grow at close to 10 per cent for the next few years and the brand map for the sector to change forever.
Regional brands are under pressure from growing competition from smaller, emerging homegrown players in their own territories. And at the same time, there is a growing preference for homegrown labels in food and dairy. The 2017 annual Nielsen Global Brand-Origin
survey indicates that in the midst of an increasing preference for global brands, the only categories with a strong swing in favour of local brands were dairy and fresh foods.
Regional brands are taking ginger steps into the new opportunity. Instead of expanding into multiple markets and launching an advertising blitzkrieg, they are using their knowledge of local palates and supply infrastructure to take one market at a time.
A slow march
Arun ice creams from the Chennai-based Hatsun Agro Products Ltd
entered the Mumbai market (with two outlets Mumbai’s Mulund and Bhiwandi) in November 2017. Before making it to the maximum city, it set its base up in Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Orissa, Maharashtra and Goa. Also the first stores in Mumbai are away from the popular hotspots, but well populated with consumers familiar with the brand.
R G Chandramogan, chairman and managing director of Hatsun Agro says he chose Arun (meaning sun) for his ice creams as more sun means more demand for ice cream. Hatsun has grown beyond a cottage industry operation to a national brand with a 4.5 per cent share of the market. At the same time it has also become the country’s largest private dairy.
Chandramogan says, “We do not want to spread ourselves thin. In all markets that we are in, we vie for prominence.” He also points out to the cost advantages that dairy players have when it comes to selling ice creams. “The peak season for ice cream (summers) is the lean season for milk production. Sourcing at competitive rates is thus a challenge for any player who does not have enough backward integration,” he explains.
Hatsun is able to save 4 per cent margin on milk-based raw material (overall there is an 18 per cent cost advantage) and these benefits (not available to a non-dairy player) are then ploughed back into the business, on advertising and entering new markets.
The ice cream market is highly fragmented and unorganised. For instance, Aurangabad
is estimated to have around 46 small brands. This keeps margins low at 4-5 per cent. This is further squeezed when national players (including multinationals) make a play for the same pie.
While this is encouraging many brands to make the national trek, they are tempering their ambitions with local insights and learnings from other’s missteps. They are tailoring in insights such as brand building is tough in price sensitive markets like Uttar Pradesh but easier in educated markets like Kerala, into their expansion plans.
An industry expert explained on grounds of anonymity: “Gujarat’s Havmor had spread itself thin. Margin pressures had started acting on them. The promoters were looking at selling the ice cream business and hence having a national presence was crucial to enhance the brand value.” South Korea’s Lotte Group acquired Havmor for Rs 1,020 crore in November.
In contrast, RJ Corp-owned Devyani Food Industries that makes Cream Bell ice creams has pretty much expanded across India and has broken into the list of top five ice cream brands in record time. Nitin Arora, chief executive officer, Devyani Food Industries said that Kerala is one of the few markets where it is not present yet. This year it started operations in Tamil Nadu, it is present in Karnataka and Andhra since the last five years. The revenue share is around 55 per cent from North India (its home market) and 45 per cent from the rest of India.
Cream Bell has almost doubled its production capacity in five years. Arora says the FY18 capex plan is to invest Rs 250 crore (Rs 210 crore already invested). “The moment you come out of your backyard markets, the cost matrix goes up,” he says.
It is stories like this, that encourage players like Andhra Pradesh chief minister N Chandrababu Naidu
Foods. Brahmani Nara, daughter-in-law of Naidu and executive director of Heritage
Foods says that while 75 per cent of its revenues in the value-added products segment is from curd, the company is now focusing on other segments like ice creams. “Ice creams will play a major role in rationalising our product portfolio,” Nara says. Heritage
sells ice creams in the South, but is eyeing the national arena.
Mintel research shows that the global ice cream market will touch sales of 13 billion litres in 2016 and India and Vietnam are among the world’s fastest growing markets. Also in 2017 India’s volumes are expected to overtake that of UK. All of this has enthused another player Vadilal
Dairy International (promoted by a wing of the family that has the rights to the brand in the southern markets while Vadilal
Industries holds the rights for North and West) to double its outlets in the next two years.
Rahil Gandhi, director, Vadilal
Dairy International says they are investing in freezers and working on brand building and visibility. Besides consolidating its base, it is working on expanding its reach, but the transformation is expensive says Gandhi as he gets ready to make the slow trek to the big league.