Danone looks to ramp up India presence

Mumbai: Danone India Pvt. Ltd, the maker of Danone yogurts and Farex baby food, is looking at ramping up its India business, following the merger of its two India units of nutrition and dairy into a single entity in July last year.

Danone’s nutrition business, which includes the acquired nutrition business of Wockhardt Group in India, comes under the umbrella of Danone Nutricia and has brands such as Protinex, Dexolac and Farex.

It is present in 200 cities, mainly through the indirect network of distributors and stockists.

Its dairy business has so far grown organically in 20 cities. In six of these cities, the company has its fresh dairy business, has its own trucks and controls the entire supply chain.

“Our Danone Nutricia business, which operates brands such as Protinex, Dexolac and Farex, is already present in 200 cities, and we are convinced that our dairy business will match this footprint,” said Laurent Marcel, managing director, Danone India, who has been with the company for over 15 years in different markets such as Paris, Moscow and Indonesia, and on whom the French firm is now counting upon for his knowledge of integration and emerging markets to grow the India business.

While the dairy company is one of the most iconic brands in France and in many countries, it is still is a relatively small company in India, according to experts.

“However, in cities where its fresh dairy business operates, its share of shelves in the outlets—modern trade and selected general trade stores—is in the range of 25-40% of the yogurt category,” said Marcel, while explaining that over the next few years, it will expand the dairy business and look at a larger portfolio in India, besides deeper penetration within its existing markets.

“Our ambition is that the leadership of Danone in fresh dairy or yoghurt category (in India) can be shared and also inspire us for other categories,” said Marcel, who recognized that the yoghurt category in which Danone is the global leader is still relatively small and still an urban trend in India.

Globally, emerging markets account for over 50% of the overall revenues of the French dairy major. “India is a strategic market for Danone. It is one of the world markets with the highest potential to grow in coming years,” said Marcel, who is also looking at expanding the company’s footprint into neighbouring markets, including Nepal, Sri Lanka and Bangladesh.

The acceleration comes after five years in India during which the company has invested Rs.1,800 crore to build manufacturing facilities in Haryana and Punjab.

It has also built its own milk collection system, working with farmers, and invested in milk coolers and setting up of a cold chain distribution network for its fresh dairy business, besides acquiring the nutrition business of Wockhardt Group. “We have been growing at a 20% rate for the last five years and we think we can continue and probably also accelerate it,” said Marcel.

As such, India’s dairy sector is one of the fastest growing segments within the fast-moving consumer goods sector. However, a large part of it is milk. Whereas Danone’s India portfolio consists largely of flavoured yoghurt, a product it is known for internationally, others such as lassi, mishti doi, or even custard have been designed by its research and development teams in India.

“Organized dairy is a Rs.80,000-90,000 crore sector growing at 15-20% per annum led by volume and price increase,” said Pankaj Gupta, senior practice head, consumer and retail, at Tata Strategic Management Group. He added that milk accounts for 60-70% in the form of polypack milk and the rest comprises value-added products such as ghee, curd, cheese, dairy whiteners, butter and paneer. “The growth is coming from the lower socio-economic segment consumers trading up from loose to packaged in dairy,” said Gupta.

As such, categories such as yoghurt and baby foods, in which Danone is present, are smaller but growing rapidly. In 2014, yoghurt was a $931 million market in India with a compounded average growth rate of 34.5% during 2009-14 and baby foods grew at 14% on an average for five years between 2009 and 2014 to be a $478 million category, according to an August report on dairy by KPMG India.

To be sure, achieving scale in the dairy business in India is not easy.

“Finding distributors for dairy is a challenge, given the complex supply chain and lack of cold chain, and many of the distributors for brands like Mother Dairy and Amul are exclusive,” said Rajat Wahi, partner and head, consumer, retail and agri sector, KPMG India, and head, consumer markets, EMA.

However, Marcel is in no hurry.

“We are in early years, this is fundamental,” he said, while pointing out the work that the company is doing in developing the milk collection network, infrastructure and farmer training, where it already has an established network of 5,000 farmers.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.