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The milky way

Over the last few weeks, the Rs 2,816-crore Nestle India has launched a couple of products in the dairy space. The first is a probiotic curd under the Nesvita sub-brand, while the second is a milk-based beverage called Milkmaid Funshakes. These, however, are not the only dairy products to come out of the Nestle stable…

Over the last few weeks, the Rs 2,816-crore Nestle India has launched a couple of products in the dairy space. The first is a probiotic curd under the Nesvita sub-brand, while the second is a milk-based beverage called Milkmaid Funshakes. These, however, are not the only dairy products to come out of the Nestle stable this year. A few months ago, the company launched its largest-selling milk brand in the world?Nestle Nido?in India preceded by the launch of a low-fat curd, Fresh ?n? Natural Slim Dahi. Earlier?last year to be precise?it introduced a fat-free, sugar-free variant of its Everyday Dairy Whitener branded Everyday Slim.

This focus on the dairy business points to one thing?the company is giving it an aggressive push. ?It is something we are very serious about,? says Mayank Tiwari, general manager, dairy business, Nestle India.

What the company intends to do is launch extensions within its existing portfolio of liquid milk, milk powder and fresh products. But an overall diversification of its product portfolio is not immediately on the cards. ?Our idea is to target specific need gaps within our current portfolio rather than diversify into allied products?such as butter or cheese?just yet,? says Tiwari. At the moment, the company has only one product outside its three key product lines?which is ghee. It did venture into butter some years ago, but pulled out subsequently.

As things stand, dairy and nutritional products are significant to the company. The business contributed 48% to the company?s turnover in the last calendar year. Of this, milk powder comprises a large chunk of the dairy business, with the Everyday Dairy Whitener, launched in 1986, being the second-largest brand after Maggi for the company. Its marketshare for the first half of the current year, that is, January-June 2007, was 34.6% to archrival Amulya?s (from Amul) 30%, according to Nielsen-ORG. Liquid milk and fresh products are smaller businesses for the company.

The need to stick to its existing portfolio stems from Nestle?s desire to maintain its profit margins, say analysts. The overall packaged dairy products business in India (including fresh milk) is estimated at Rs 25,000-Rs 27,000 crore. Of that, fresh milk alone is estimated at Rs 20,000 crore. This space is dominated by brands such as Amul and Mother Dairy, besides various state cooperatives and regional brands. Nestle does not operate in this space at all. It is present in the ultra-heat-treated milk segment?the milk is sold in tetrapaks and can be stored longer. The margins here are higher, with the price of a carton of milk pegged at Rs 30-35.

In contrast, packaged fresh milk is highly competitive, volume-driven and price-sensitive. For a profitability-oriented company such as Nestle it doesn?t make sense to step into this segment, say analysts. ?Traditionally, Nestle has targeted the upper end of the market with its dairy products go,? says Mazyar Kotwal, senior manager, advisory services, KPMG. ?Scaling down would mean jeopardising prices, which the company is unlikely to do.? This point is reiterated by Tiwari of Nestle, ?We operate in the value-added products space and are not likely to move away from it.?

Cheese and butter are regarded mass-market products, with volumes required to justify investment into the cold chain. If sales are not adequate, given the nature of competition, it is difficult to sustain, say analysts.

Nestle did experience a problem of this kind when it forayed into the butter segment a few years ago. Leader Amul has had to grapple with stiff competition in butter, indicated as much by PG Bhatol, chairman of Gujarat Cooperative Milk Marketing Federation (GCMMF), promoter of the Amul brand, at its 32nd Annual General Meeting in June this year.

In such a scenario, it makes ample sense for Nestle?the second-largest dairy player after Amul, whose turnover is Rs 4,277 crore (Mother Dairy, for the record, is the third-largest player at Rs 2,200 crore)?to focus on areas where competition is limited. To a certain extent, the value-added space does offer that though it is getting increasingly competitive of late. Both Mother Dairy and Amul have upped the ante.

For instance, Amul will launch its chocolate-based milk drink, Kool Koko, on September 6, adding one more product to its growing milk beverages portfolio. Explains KM Jhala, general manager, GCMMF, ?We have butter milk, flavoured milk, coffee and now a chocolate-based milk drink in our portfolio. Whenever there is a gap, we try and see how we can plug it.? It is this need to span the entire packaged dairy products spectrum, which has pushed Amul to launch almost 40 products so far.

Mother Dairy is playing catch-up at every stage (the company announced the launch of its probiotic dahi the same day as did Nestle). Says Paul Thacil, chief executive officer, Mother Dairy India, ?Barring milk powder, we are pretty much there in every other segment. We are clear that we will operate in the mass-market as well as value-added space.?

One reason for Nestle and its rivals to be bullish about the value-added dairy space is the growing acceptance and the willingness of consumers to spend on these products. This, in turn, is linked to changing lifestyles and higher purchasing power. ?Growing health consciousness is driving consumers to pick up the right kind of products,? says Sumit Buddhiraja, senior vice-president, research at Mumbai-based broke- rage firm First Global Securities.

Thus, Nestle?s strategy of playing on the health and wellness platform seems to be a step in the right direction.

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First published on: 30-08-2007 at 00:00 IST
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