With consumer demand for dairy products in India forecasted to grow seven times the forecasted growth for China in the next decade, it’s a wonder that it took so long for New Zealand’s biggest company Fonterra to re-enter the world’s fastest growing economy.
In August this year the Kiwi dairy behemoth announced a joint venture with Indian retail giant Future Consumer Limited to produce a range of consumer and foodservice products.
Fonterra’s earlier foray into India, a year after it took its present corporate form following the merger of Kiwi Cooperative Dairies and New Zealand Dairy Group with the New Zealand Dairy Board in 2001, came a cropper. It partnered with well-known Indian food brand Britannia for a few years before leaving India in 2007.
This time round, though, the ground conditions for the relationship to succeed look far more promising. Today’s business environment in India and the one a decade-and-a-half ago are as different as, well, chalk and cheese: the country’s middle class has expanded to numbers greater than the population of the United States, its transport, retail and retail infrastructure – critical for the dairy and food industry – has improved manifold and the economy is tipped to be the world’s fastest growing for several years to come.
By all counts, Fonterra seems to have chosen its partner well. For one, Future Consumer Limited has a near-countrywide footprint, being at the retail coalface in 26 of 31 Indian states. That is the kind of coverage that is rare, coming from a single entity for a country with a geographical spread of sub-continental proportions.
The group also has a well-developed cold chain and logistics system suited to the dairy industry, its own retail stores with plans to add some 1100 branded upmarket retail outlets in the next twelve months alone.
India is the world’s largest producer of milk, registering growth of six per cent in the past four years and four per cent in the four years prior. It is forecasted to grow nine per cent by 2022. However, some forecasters like Euromonitor International estimates puts the growth rate of 15.2 per cent in the period 2018-23.
As India’s large, traditionally vegetarian population becomes wealthier, demand for its go-to food for protein, dairy, can only grow exponentially. Milk consumption is expected to grow to 82 billion litres annually in the next seven years according to estimates quoted by Fonterra.
While Fonterra’s strategy is obviously to straddle the country in the quickest possible time with a nationwide network like Future Group’s, other dairy majors from around the world have quietly entered pockets of the Indian market partnering with regional dairies, many of which are successful cooperatives.
To name just a few, France’s Lactalis has invested in Tirumala Milk Products and Anik Industries Ltd; Cargill Ventures has invested in Dodla Dairy. KKR India, local arm of the New York-based buyout entity KKR & Co. has invested in the manufacturer of the well-known Kwality brand of dairy products. While these investments and operations might seem small when compared with Fonterra’s, the slew of foreign dairy investment partnerships signed across the country in the recent past underscores the importance that the world is beginning to accord to investing in the dairy industry in India.
India’s well-entrenched dairy companies like the Gujarat Milk Marketing Federation with its brands most synonymous with dairy such as Amul, are also stepping up their game with an elaborate repositioning and promotional strategy. Incidentally, the late founder of this cooperative, Dr V Kurien, who is regarded as the father of modern Indian dairying, interned in New Zealand’s dairy industry more than fifty years ago.
Amul, though just about half the size of Fonterra by way of turnover, is a well-loved, deeply entrenched brand and it will be interesting to see the marketing and branding battles fought by these two giants for the hearts and minds of the discerning Indian dairy consumer.
Interestingly, Gujarat Cooperative Milk Marketing Federation has announced plans to launch a fee-based franchise model leasing its brand name to small businesses. This is seen as a strategy to reach the rural grassroots, where a million small dairy cooperatives, often the source of the bulk of the Federation’s milk.
Meanwhile, as wealth and aspirations grow, the dairy industry is poised to see an explosion in value added products. Cheese, for instance saw growth in 2017 with the growth in specialty foodservice outlets in urban markets. Mozzarella and Parmesan are becoming increasingly common in retail channels. Similarly, flavoured milks are growing at a clip with increasing negative perception of fizzy drinks.
Fonterra and New Zealand’s well-regarded reputation in India and Future Consumer’s logistical and retail reach should turn India into the land of milk and money for the partnership.