Milking Heritage

Andhra Pradesh Chief Minister N Chandrababu Naidu founded Heritage Foods, a dairy products company, is eyeing a pan-India presence as it aims to grow its revenues three-fold in the next five years. To do this the company plans to increase the share of value-added dairy products in its portfolio from 24 to 40 per cent, increase marketing spend for the brand and exploit its access to new markets through the dairy brands that it has acquired from Reliance Retail.

The company also recently refreshed the Heritage brand with a new logo and packaging improvements. Brahmani Nara, daughter-in-law of Naidu and executive director of Heritage Foods says, “Our aim is to become a nationally recognised brand by 2022. We have already kicked off marketing activities and refreshed our logo to a smiling glass of milk.” 

Heritage wants a large sip of the Rs 80,000 crore organised dairy market. It is convinced of the potential of the dairy business in India, buoyed perhaps by the entry of several corporate players in recent months. But how does Heritage plan to compete with the giants for its spot in the market?

Adding value to milk

With multiple variants of the core milk brand (light and toned, double cream, etc), it wants to increase the margins from the same product. It is also ensuring that the brand is present and visible across every niche within the segment. At the same time, Heritage is playing the premiumisation game by stepping up the involvement in value added dairy with products such as yoghurt. 

Heritage has also planned a big marketing thrust for the new markets. Nara says that the company has been spending around 0.5 per cent of its revenues on marketing in the previous years. It plans to double that to one per cent of its revenues in 2017-18.  

However to get a foothold in a market dominated by brands such as Amul, Mother Dairy and multinational giants such as Nestle, Danone, it will have to find a way to position its brand uniquely. 

Positioning challenge

Nara says that they intend to keep the core promise of affordability across the product range as this is how she believes that she can improve brand penetration into new markets. 

Heritage has also spread itself wider in terms of the brand’s reach and scope through the acquisition of Reliance Retail’s dairy business in 2017 and Karnataka-based Teja Dairy in 2016. 

Now the company says it is close to signing a joint venture agreement with an international player for marketing their value added products (flavoured yoghurts). Refusing to divulge further details, Nara says that this will be a marketing and technology sharing joint venture. Also to focus solely on the dairy business, Heritage sold its retail and allied businesses to Kishore Biyani led Future Retail in an all-stock deal in November last year. 

Heritage is present in many states currently although its core audience is in the South. The aim is to become a nationally recognised brand with a turnover in excess of Rs 6,000 crore by 2022. The Heritage Group, a public listed entity, has two main business divisions; dairy and renewable energy. The annual turnover of Heritage Foods crossed Rs 2,642.89 crore in 2016-17, with revenues from the dairy division at Rs 1,870 crore.

“Our aim is to become a nationally recognised brand by 2022. We have already kicked off marketing activities and refreshed our logo” - Brahmani Nara, Executive Director, Heritage Foods

While the brand is known to customers in the South, it will be entering uncharted territory in the North and West. 

Heritage, Nara says, wants to position itself as a ‘fresh’ brand. Nara says, “Our consumers in Delhi get milk which comes from a centre just five hours away from Delhi. We use a tagline ‘bachpan si taazgi’ to highlight the freshness of our milk.” 

The company is hoping to milk the growing trend towards buying local among Indian customers, especially when it comes to food and dairy. According to a report by Kantar Millward Brown for the top 50 most valuable Indian brands for 2016, Indian customers are veering towards brands that they perceive fulfil a nationalist mandate. While this is difficult to pin down in terms of data and numbers, the report went on to cite the rapidly rising rate of growth among local brands in a range of food and dairy products.

Capacity building

Heritage runs 15 processing plants across India, and procures locally across the 15 states where it is present. It recently acquired Reliance Retail’s dairy business, which now gives Heritage a significant presence in the northern markets. With this acquisition two brands Dairy Life and Dairy Pure have come into its fold and it has also gained access to Reliance brands’ volumes in North Indian markets, which is estimated to be around 150,000 litres per day. 

At present, Heritage Foods handles around 1.4 million litres of milk per day procured from 350,000 farmers (through 13,000 procurement agents). It has 7,000 distribution agents and 120,000 retailers and reaches 1.5 million households every day. To treble its turnover, further expansion is on the cards. 

Nara says around Rs 90-100 crore would be pumped into expanding and modernising existing facilities per year and for setting up five greenfield processing plants. For the new plants, it will make around Rs 150 crore worth of investments. With this Heritage expects to double the milk handling capacity in the next five years to 2.8 million litres per day and hopes that at least one-third of this will be from the northern markets. 

The expansion will be funded through a mix of debt and internal accruals. Nara claimed that Heritage enjoys a 50 per cent return on capital employed, which is high going by dairy industry standards.