One more product rolls out from Danone's stable in India

French food and beverage major Danone, which reported revenue of $25 billion (Rs 1.25 lakh crore) in 2011, has rolled out a new lassi range in Mumbai, Pune, Hyderabad and Bangalore.

After two years of operations in India, the global major has not expanded beyond these cities. It has an alternative distribution and consumption model in the North, and this is targeted at lower socio-economic class consumers. However, its core urban markets are centred in the southern and western regions.

Danone India managing director Jochen Ebert says the metro cities still hold enough potential for the company.

The Indian unit’s portfolio includes smoothies, set curd, flavoured yoghurts and nutritional drinks. Barring nutritional drinks, which are for the northern markets, all other products, including its new lassi range, are available in both traditional trade and modern trade outlets in Mumbai, Pune, Hyderabad and Bangalore.

Market experts say to account for substantial presence in India, expanding operations beyond these four cities would be imperative. However, key challenges like milk procurement and processing and cold chain management in a country where the organised dairy market is still evolving are issues the company has to grapple with.

Milk production in India is pegged at about 122 million tonnes per year. Of this, processed milk accounts for 35 per cent. While Nestle has developed a milk procurement hub in Moga, Punjab, recent entrants such as Danone are yet to do so. As of now, the company works with local milk farmers in the north, while it has partnered Schreiber Dynamix Dairy in Baramati, Maharashtra.

In the North, Danone has set up its own plant in Haryana for manufacturing Fundooz, a health drink. Ebert says the company would continue working with local farmers and leverage the support of non-governmental organisations in the North to push its bottom-of-the-pyramid model there.

However, market experts say if the company proposes to move to urban centres in the North, a strategic tie-up with a dairy major would be essential. Anand Ramanathan, associate director, KPMG, says, "At least one more tie-up for the north and east regions would be needed."

That is because setting up a dairy unit alone is expensive in India. Increasingly multinationals such as Danone are opting to outsource manufacturing focusing on distribution and brand-building. Ebert says that the Indian unit has focused on improving reach in the four metros, and will keep its attention on it for now.