A company that has experienced stagnating profits over the past three quarters would have a few options before it to explore. One among those would be to try and figure out why it isn’t making more money; and, thereafter, buckle down, enhance productivity, improve efficiencies and squeeze a little more juice out of its margins.
But, this is not a strategy that Vadilal Industries —Ahmedabad-based purveyor of ice cream and frozen desserts — has decided to pursue. Instead, it has chosen to embark on a large expansion plan in North India to increase its market share, which currently stands at 20 per cent.
Already a force to reckon with in Gujarat and Rajasthan, the company has pumped Rs 120 crore into its operations to scale up the manufacturing capacity of its plant in Ahmedabad, as well as as the one in Bareilly, Uttar Pradesh. These plants will increase output from 225,000 litres per day (lpd) to 375,000 lpd. It’s impressive that the company has accomplished this mainly through internal accruals. Besides, it has also invested in the installation of extrusion technology at its Ahmedabad plant so that its ice creams improve both in taste and texture.
There are a few good reasons for Vadilal to do this. One, India’s ice-cream market, estimated at Rs 2,500 crore, is growing at an annual rate of 18 per cent. Of this, about Rs 1500 crore is controlled by organised players — Amul, with annual ice cream sales of close to Rs 400 crore, is the market leader; while Vadilal is second with Rs 300 crore of revenues. But, competition is getting fierce, with regional brands like Nagpur’s Dinshaws and Bhopal’s Top n Town trying to eat into their business. More worrisome for Vadilal are the significant expansion plans chalked out by national chains Amul and Mother Dairy, as well as fellow Ahmedabad-based ice-cream maker Havmor.
Among these players, Mother Dairy — a leader in the northern Indian market that is expanding its network to other areas like Mumbai and planning on opening a staggering 7,000 outlets across India over the next two years — poses a serious threat. “Our strategy for ice cream category would be to keep growing the market in both the impulse and take-home categories. We are aiming for a national footprint by the end of 2012-13,” a Mother Dairy spokesperson says.
Even Amul, owned and marketed by Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF), is not to be trifled with. It has planned nine new processing plants for various dairy products over the next four years at a cost of Rs 3,000 crore. If that wasn’t enough, Havmor has already increased its retail sales points to 15,000 in Gujarat, Rajasthan, Madhya Pradesh and Maharashtra.
Making things worse is for Vadilal is its limited market access. A 20-year-old family separation restricts Ahmedabad-based Vadilal from selling its ice cream products in southern Indian states, including Mumbai and Goa. This is a major handicap, considering that 25-30 per cent of the country’s total ice cream sales come from these places. In essence, Sailesh Gandhi, the elder brother of Rajesh Gandhi (the managing director of Vadilal Industries and Vadilal Enterprises) went his own way in 1992, taking along with him the rights to sell the ice cream products of the family’s brand in the southern markets. Rajesh, on the other hand, was given the rights for the rest of India. Both the brothers sell their ice cream products under the family brand name.
So, it’s not surprising that Vadilal is going hell for leather cornering the northern market. It is looking to double the number of its exclusive ice-cream retail outlets — Happinezz Parlour — in Uttar Pradesh, Delhi-NCR, Uttarakhand, Punjab and Haryana over the next two years. The company currently has around 200 of those, mostly in Gujarat, Rajasthan, Uttar Pradesh and Delhi-NCR. It also plans to add 3,000 retail points-of-sale in Uttar Pradesh alone, in addition to the 10,000 such points across North India. “Regional players like Vadilal can succeed in northern markets with the right mix of cold chains, outlets, accessibility for consumers and affordable price,” says BM Vyas, a dairy market expert and former managing director of Gujarat Cooperative Milk Marketing Federation.
The company has also planned a Rs 15-crore advertising spend during 2012-13 to woo customers. “There is a need for appetite-branding for ice cream players, especially the regional ones. Vadilal has got it right by doing the right kind of appetite-branding, which gives a mouth-watering and tempting feeling to the viewer,” says Harish Bijoor, a brand consultant and marketing expert, adding that the company still needs to work on injecting a ‘fun’ factor into its campaign.
Another strategy: Launching a new range of ice creams under the brand ‘Ice-Trooper’, that targets children. “We realised that kids are the driving force behind ice-cream purchase decisions in a family. With this in mind, we launched six varieties in April under this brand. The colour, shape and flavours are appealing to them,” says Rajesh Gandhi. Last year, the ice-cream maker came out with three varieties — Badabite, Flingo and Gourmet — in the premium segment.
Can Vadilal, despite its geographic handicap, keep pace with its peers? Its advantage in handling large distribution networks, including cold chains and stock-keeping units (SKUs) of more than 300, gives it valuable experience in scaling. Also, according to Gandhi, Vadilal is the only ice-cream player in the country to have presence in all the three categories of ice creams — premium, regular and frozen dessert — which will be an asset. Plus, the company offers products for all age groups in the price range of Rs 5 to Rs 100, and above.
Yet, there are dos and don’ts that Vadilal would do well to adhere to. North India, primarily Uttar Pradesh, is often crippled by power problems — the stuff of nightmares for an ice-cream maker that doesn’t have reliable backups. “Supply chain is a major challenge ice cream players are facing at present. Ice cream is a product that requires constant cooling and proper handling,” says Piruz Khambatta, chairman and managing director, Rasna, who is also the chairman of the CII National Committee on Food Processing. Also, GCMMF’s Vyas says it would be sensible for the company to address the bottom of the pyramid rather than compete with multinationals in the high-price segment. This would bring volumes and visibility for the brand, he adds.
Overall, if Vadilal gets the important things right, it will have a lip-smacking opportunity ahead. India’s per-capita consumption of ice cream is estimated to be three scoops or 300 gms a person per year, against a mammoth 24 litres a person in several developed countries like the US, Japan and Germany. Says Khambatta: “The demand potential for ice cream is huge and Vadilal is able to control and manage supply costs better and more effectively than multinationals” — an endorsement that is sure to bolster the confidence of the Gujarat ice-cream maker.