Raw material costs melt margins of ice cream makers

Early monsoon also causes volumes to dip this season

Recent spurt in raw material prices coupled with early monsoons have caused a dent in ice-cream makers profit. While milk prices have gone up by 7-8 per cent, major cause of concern for ice cream manufacturers prices of dry fruits and nuts, flavours and fresh fruits, which have spiralled significantly in the last one year.

"Rise of raw materials have impacted margins by around 10-15 per cent," claimed Rajesh Shah, vice president, Havmor. He elaborated that there has been a 7 per cent rise in prices of vanila flavour, while the fruit prices have risen in the range of 20-35 per cent across the basket. "The most significant rise has been in the dry fruits segment, where walnut prices have gone up by almost 75 per cent compared to last year, almond by 25-30 per cent, pista by 25-30 per cent. Dry fruits have also seen some impact of fluctuating rupee value vis-a-vis the dollar. Makers usually buy from traders who import these ingredients," Shah explained.

On the whole, milk prices constitute around 18 per cent of cost of raw material for ice creams, sugar around 2-3 per cent, dairy fat around 18 per cent, and the remaining are ingredients like vanila, chocolates, fruits and nuts.

Evergreen categories like vanila and chocolate constitute nearly 42 per cent of overall ice cream sales, and it is difficult to raise prices in these flavours owing to stiff competition. Havmor has raised prices of its ice creams by around 5 per cent in April this year, but as Shah said the hike is not enough to compensate for raw material price increase. Profitability after taxation is in the range of 5 per cent.

R S Sodhi, managing director, Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF), which markets the Amul brand of ice creams, also said that, "On the whole, combining milk and other raw materials together, there has been an 8-10 rise in raw material cost. In contrast, we have raised prices in the range of 6-7 per cent in January this year."

Further price rise also seems unlikely as the major season is over. Bulk of ice cream sales happen during summer months, and this year, early monsoons have affected sales as well. "Ever since the sky is overcast and monsoons have set in, sales have dropped by around 60 per cent," Shah said.