How Fonterra seeks to leverage changing dairy consumption habits in India

Last month marked the launch of the first label from the stable of the New Zealand-based Fonterra and Indian retail major, the Future group. For Fonterra this is its second stint in the country, the first ending in a bitter split with former partner Britannia. And keen to pick its way away from the mistakes of its past, it has chosen ‘Dreamery,’ a brand made for the Indian market to lead its second run in the country. But has Fonterra left it too late to break into the lucrative, but cluttered, Indian dairy market?

The past will stand it in good stead the company says. For one, the approach is cautious and measured this time around. The JV with Future Consumer was announced last year and both Sunil Sethi, chairman, Fonterra Future Dairy and Ashni Biyani, managing director, Future Consumer insist that the first year was spent understanding the market and where the JV could make a difference.

“There is a lot of dairy technology and strict quality standards that we are bringing to the table,” says Sethi. “Future Consumer, on the other hand, is giving us crucial insights into the market and helping with product development,” he says.

Fonterra and Future have chosen to adopt a phased launch strategy. Dreamery has hit the west of the country with yoghurts and flavoured milk and will gradually expand to the rest. This too, experts point out, is a sign of experience.

Fonterra’s first stint came to a close in 2007. It had teamed up with Britannia in 1999 and then spent eight years trying to break into the packet milk market. But it was clear to the Kiwi giant, quite early on in the relationship that finding a foothold in the segment dominated by the likes of Amul and Mother Dairy was not going to be easy. 

This time around, packet milk is off the table. Biyani says, “The dairy market is at an inflection point today where consumers are willing to try out products that can give them more than what an ordinary glass of milk can. The accent is on offering not only great-tasting, but also nutritious products.” 

At a time when the Rs 1 lakh crore organised dairy market in the country is seeing competitive intensity, Fonterra has its task cut out, say experts. “While co-operatives such as Amul and Mother Dairy have always been there, the private-sector players are beginning to flex their muscles aggressively. Newer entrants then will have a tougher time to mark their presence,” says N Chandramouli, CEO of brand advisory and research firm TRA.

Earlier this year, French major Lactalis acquired Prabhat Dairy’s milk products business for Rs 1,700 crore in its third India acquisition. While Britannia and Nestle have been fine-tuning their dairy strategies here, ITC has major expansion plans too.

Biyani says the domestic market opportunity is large enough to accommodate more players. “Within the Future group we will be selling around Rs 900 crore of dairy products across brands this financial year. This number can easily go up. The JV will look to target a business of Rs 6,000 crore in the next five years,” she says.

To put things in perspective, the packet milk segment is the largest in the organised dairy market in India, estimated to be around Rs 50,000 crore in size. The rest of the market is distributed between the value-added products including ghee, yogurt, butter, flavoured milk, ice cream, cheese, dairy whitener, paneer and milk shakes among other products. This market is growing at double the rate of growth of packet milk. 

“While value-added dairy is growing at 20 per cent per annum in India, fresh milk is growing at half the rate,” says Sethi. “We will continue to keep our attention on the value-added segment,” he says.

The company is being careful the second time around believe experts, putting its learnings from the past to contextualise and deal with present-day challenges. “The dairy market is very local in nature. After its first stint, there is a realisation perhaps that a measured approach, where it goes from one region to the next tying up local sourcing, processing and distribution, could help it (Fonterra) win consumers,” says Chandramouli.