How are dairy brands milking big benefits from small formats

Indian dairy brands are now keen on expanding their network via small formats. Be it small parlours, booths or shops. The brands are eager to spread their network faster for better profit margins via franchise route. The same case follows with sub-segments of the Dairy industry like ice-cream, frozen dessert and milkshake brands too. We spoke to few players in these arenas and got a deep insight on how these small formats are proving to be favourable for them.

According to research report Indian Dairy Industry Outlook 2022, with an annual output of 138 million tonnes, India is the largest producer of milk in the world. The Indian dairy industry also offers good opportunities to both domestic and foreign investors for entry and expansion. Due to their rich nutritional qualities, dairy products' consumption has been growing exponentially in the country; and considering various facts and figures, the study anticipates that milk production in India will further grow at a CAGR of around 14% between 2015-16 and 2021-22. This clearly shows that with the growth of this industry, not only the opportunity for smaller players will widen, but the small format selling will also be on a boom.

As per Subhash Chandra Mandge, Chairman, NCDFI- National Cooperative Dairy Federation of India, smaller formats in dairy industry are vital for smaller places and areas where the brand can be available to all. Any milk brand that goes into smaller formats, targets to meet out the requirements of all. The supply is better this way and home delivery can also be done easily with smaller booth and formats.

Boon for sub segments too

Frozen Desserts brand, Spanish Delights, also supports and operates via small formats. Spanish Delights is in collaboration with a decade old Spanish Brand, Deleite Espana, having its presence in over 30 countries in Europe and Middle-East. It started operations in mid of Year 2015 with first manufacturing unit in Jaipur District. After its retail presence via carts in Jaipur and surrounding towns, it forayed into Delhi market with outlets spread across genteel localities of GK2, Shahpur Jat, and Malviya Nagar. Aalekh Agarwal, Founder of the brand says: “Operations via Small Format Stores do help in reach and higher margins, but brings host of challenges too. High rental costs and added end-mile logistics cost along with extremely high promotion costs makes it more cost intensive, which is detrimental given the low margin domain. We plan to spread out fast by opening 15 more outlets in Delhi-NCR by next year.”

Smaller formats not only makes it easier for common man to get varied products at one place, but smaller stores generate more employment opportunities too due to lesser investments as compared to bigger stores. When any brand gives the rights to franchise outlets to sell their products, this surely improves margins. AMUL currently has 8000 Amul Preferred Outlets pan-India and 10 lakh+ retail points, which is a mix of big, medium and small formats. Another major player, Mother Dairy markets approximately 3.2 million litres of milk daily in the markets of Delhi, Mumbai, Saurashtra and Hyderabad. Mother Dairy milk has a market share of 66% in the branded sector in Delhi, where it sells 2.5 million litres of milk daily and undertakes its marketing operations through around 1400 retail outlets and over 1000 exclusive outlets of Mother Dairy. Mother Dairy ice creams boasts of approximately 62% market share in Delhi and NCR.

With over 200 outlets across India, Havmor is a pure milk icecream brand that too follows small formats. Ankit Chona, MD, Havmor Ice Cream Ltd informs “Due to the availability of space, small formats have received an overwhelming response in India. Infrastructural development in tier I & II cities and the introduction of smart cities has also lead to the growth of these formats. With changing lifestyles, growing income levels and demanding customers, we believe the franchise market will grow as per trends seen. People tend to spend more to experience innovative and unique offerings from brands. Renowned Indian as well as international brands have successfully adopted this model. Franchise model enables the brand to connect with the consumers directly providing a personal experience at the comfort of one’s home.’

Milkshake brand, Keventers presently has 75 operational outlets and the brand has 50 locations signed/under construction, along with master franchisees sold for all of India, as well as countries like Kenya, Nepal, California, Dubai and Sharjah.

Keventers’ CEO and Director, Sohrab Sitaram informs, ”Keventers is growing exponentially as a brand and we are aiming to target 300 outlets by February 2018. Majority of the outstation operations will follow the route of franchising. This is mainly to facilitate and take advantage of the local knowledge, business trends, marketing and efficiency in consultation with our local partner who has taken the master franchisee. Furthermore, we want to get into the distributorship market via our milk - cow’s milk to be specific followed by the flavored milkshake business where the milkshakes will also be sold off retail outlets and will have a shelf life of 3 months.”

Fast increasing demand and trends

Over past years, the production as well as consumption of dairy products in India has increased. Experts predict huge demand for dairy products in the country this year. India’s milk production has touched 155.499 metric tonnes during 2015-16 with an annual growth rate of 4.5% per annum. Similar growth trend has been seen in the consumption of Ice creams in India. Hence, an upward trend in the Indian dairy industry will definitely boost ice cream consumption too.

Franchise model always helps in expanding the business and strengthening the brand visibility. Chona of Havmor Ice cream further adds: ‘Home delivery services, availability of products at your door step, promotional sale offers, exposure to various flavours and new products are just some of the benefits that can be enjoyed by customers. Franchising model also helps in retaining the customer loyalty and building relationship at various levels.’

In terms of expansion, Havmor is coming up with a plant in Faridabad, which is likely to be commissioned by February 2017. It will have an initial production capacity of 50,000 litres per day. Apart from franchise model, Havmor is also planning to adopt an online store format.